Defendant C. Kenneth Still, trustee (“Mr. Still” or “Trustee”) moves this court to dismiss the complaint of Plaintiff Grant, Konvalinka & Harrison, P.C. (“GKH”) in this adversary proceeding. [Doc. No. 5].
The court has reviewed the briefing filed by the parties, the pleadings at issue, and the applicable law and makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052. Based on those findings and conclusions, the court will GRANT the motion to dismiss with respect to the Trustee, but will DENY the motion with respect to the other defendants, Richard L. Banks (“Banks”), Richard Banks & Associates, P.C. (“Banks P.C.”), and Steve A. McKenzie (“Debtor”).
I. Background Facts
The court has summarized facts involving these same parties in several other memoranda filed in both the main bankruptcy case and in separate adversary proceedings involving similar allegations. See, e.g., [Adv. Proc. 11-1016, Doc. No. 68; Bankr. Case No. 08-16378, Doc. Nos. 1199, 1354, 1387; Adv. Proc. 11-1110, Doc. No. 25]. However, for ease of reference, the court will review the procedural and factual background here.
A. Procedural Background
GKH filed this lawsuit (“HC Malpractice M/P Lawsuit”) on August 5, 2011 in the Circuit Court of Hamilton County, Tennessee. [Doc. No. 1-2]. The HC Malpractice M/P Lawsuit Complaint asserts that: (a) GKH is a law firm located in Chattanooga, Tennessee; (b) defendant Richard L. Banks is an attorney who represented both the Trustee and the Debtor in a lawsuit brought against GKH in the Chancery Court of Bradley County, Tennessee, alleging conflicts of interest and breach of fiduciary duty (“Malpractice Lawsuit”); (c) the law firm of Banks P.C. employs Mr. Banks; and (d) the Trustee is the trustee in the Debtor’s main bankruptcy case. See HC Malpractice M/P Lawsuit Complaint, ¶¶ 1-3. GKH contends that the pursuit of the Malpractice Lawsuit was malicious prosecution and abuse of process.
On the same day GKH filed an almost identical lawsuit in this court. See [Adv. Proc. No. 11-1118, Doc. No. 1] (“Bankruptcy Malpractice M/P Lawsuit”). The Trustee subsequently removed the HC Malpractice M/P Lawsuit to this, court. [Adv. Proc. No. 11-1121, Doc. No. 1]. GKH moved to remand and/or abstain and/or consolidate this adversary proceeding with Adversary Proceeding Number 11-1118. [Adv. Proc. No. 11-1121, Doc. No. 3 (“Motion for Remand”) ]. The court is simultaneously issuing its ruling on the Motion for Remand with this memorandum. For the reasons stated in the memorandum pertaining to the Motion for Remand, it is denying the request to remand the claims against the Trustee to state court. It is also denying GKH’s request to abstain from ruling on the claims against the Trustee. The court will also issue a ruling on the Trustee’s Motion to Dismiss pending in the Bankruptcy Malpractice M/P Lawsuit. The remaining claims in both adversary proceedings against Banks, Banks P.C. and the Debtor will be consolidated and
B. Case Background
On November 20, 2008, a group of petitioning creditors filed an involuntary petition in bankruptcy in this court against the Debtor. See [Bankruptcy Case No. OS-16378, Doc. No. 1], On December 20, 2008, the Debtor filed a Chapter 11 voluntary petition in bankruptcy, Bankruptcy Case No. 08-16987. On January 16, 2009, this court consolidated the two bankruptcy cases. [Bankruptcy Case No. 08-16378, Doc. No. 33].
The court held a hearing on the U.S. Trustee’s motion to appoint a trustee on February 19, 2009. [Bankr. Case No. OS-16378, Doc. Nos. 135, 101]. The U.S. Trustee filed a notice appointing Mr. Still Chapter 11 trustee for the Debtor on February 19, 2009; the court issued an order granting the U.S. Trustee’s motion to appoint a Chapter 11 Trustee on February 20, 2009. [Bankruptcy Case No. 08-16378, Doc. Nos. 130, 140]. The court converted the case to a Chapter 7 case on June 14, 2010, and Mr. Still continued as the Chapter 7 trustee. [Bankruptcy Case No. OS-16378, Doc. No. 789].
C. Malpractice Lawsuit
On August 6, 2010, the Trustee and the Debtor filed the Malpractice Lawsuit in Bradley County Chancery Court, Docket No. 2010-CV-251, against Nelson Bowers, II; Exit 20 Auto Mall, LLC; John Anderson; and GKH. See [Doc. No. 1-1]. The Trustee and the Debtor asserted causes of action against GKH for breach of fiduciary duty, conflict of interest and civil conspiracy. Id. It is the prosecution of the Malpractice Lawsuit that is the basis of GKH’s malicious prosecution and abuse of process claims in this proceeding.
The HC Malpractice M/P Complaint provides a detailed account of the litigation proceedings that occurred following the Trustee’s filing of the Malpractice Lawsuit. This court reviewed substantially similar allegations by GKH in the briefs filed in support of GKH’s motion for leave to file such a malicious prosecution and abuse of process action against the Trustee and his counsel in Bradley County, Tennessee (“Bradley Leave Motion”) that was filed in the main bankruptcy case. See [Bankr. Case No. 08-16378, Doc. Nos. 1200, 1248, 1248-1 through 1248-6, 1307, 1307-1 through 1307-7, 1387]. The court denied leave to file the action in Bradley County on August 5, 2011. [Doc. Nos. 1387, 1388]. In response, GKH filed the Bankruptcy Malpractice M/P Lawsuit asserting those claims of malicious prosecution and abuse of process against the Trustee and other defendants arising out of the Malpractice Lawsuit in addition to this adversary proceeding.
Attached to the HC Malpractice M/P Complaint are numerous exhibits that all relate to the parties’ disputes arising in the Malpractice Lawsuit. The court has had a
Additionally, the court has already reviewed the underlying circumstances pertaining to the Malpractice Lawsuit and an accompanying avoidance action lawsuit brought by the Trustee in this court, Still v. Bowers, II, et al., Adv. Pro. No. 10-1407 (“50 Acre Lawsuit”). In its memorandum denying the Bradley Leave Motion, the court previously found the following related to the two suits brought against GKH and others by the Trustee:
On August 5, 2010, the Trustee brought an action against Nelson E. Bowers II, Exit 20 Auto Mall, LLC, John Anderson, Grant, Konvalinka and Harrison, PC, and CapitalMark Bank & Trust. [Adv. No. 10-1407, (“Trustee’s Complaint”)]. The Trustee’s Complaint was signed by Mr. Banks and Mr. LeRoy as counsel for Mr. Still. See [Adv. No. 10-1407, Doc. No. 1].
The enumerated causes of action in the Trustee’s Complaint were violation of the automatic stay, avoidance of post petition transfers, avoidance of preferences, avoidance of fraudulent transfers, an action to determine the validity of a lien, equitable subordination, and preference claims against insiders. The Trustee’s Complaint sought to avoid a post petition transfer of approximately sixty acres of real estate located in Bradley County, Tennessee. Based on filings with the Tennessee Secretary of State and the Register’s Office of Bradley County which were attached to the Trustee’s Complaint and on which Judge John C. Cook relied in his dismissal, [Adv. No. 10-1407, Doc. No. 1]; [Transcript, Adv. No. 10-1407 at pp. 8-9], the transferor was Cleveland Auto Mall, LLC whose members were the debtor and Mr. Nelson E. Bowers, II. The transferee company was Exit 20 Auto Mall, LLC, formed December 10, 2008, organized by Wayne Grant, who also served as registered agent with an address at 633 Chestnut Street, Chattanooga, TN. The deed was dated December 10, 2008, approximately twenty days after the involuntary filing. The deed reflects that it was “Prepared by and [to be returned] to Grant, Konvalinka & Harrison, P.C., Ninth Floor-Republic Centre, 633Chestnut Street, Chattanooga, TN 37450-0900.” See [Adv. No. 10-1407, Doc. No 1, p. 47]. The Affidavit of Value on the deed was signed by Nelson E. Bowers, II as Chief Manager and showed a value of $4,000,000. The Trustee’s Complaint also had attached a Deed of Trust from Cleveland Auto Mall, LLC to SunTrust Bank dated February 24, 2006, securing approximately $3,800,000 in debt. The court granted the motion of Capi-talMark Bank & Trust for a judgment on the pleadings and granted the Motion of GKH to dismiss the Trustee’s Complaint on December 16, 2010. [Adv. No. 10-1407, Doc. No. 67], The court could not find any allegation of a transfer of property of the debtor or the estate. It found that the transfers alleged to have been made were of property owned by the limited liability company based on the documentation attached to the complaint. With respect to the allegation regarding equitable subordination, the court found the claim was insufficient to support a claim for equitable subordination because the pleadings demonstrated no actions against property of the estate or the debtor. [Transcript, Adv. No. 10-1407 at p. 11].
GKH is also a creditor in the case. It filed a secured claim for $406,828.51 on April 27, 2009. [Bankr. Case. No. 08-16378, Claim 86-1]. This claim reflected that the collateral securing its debt was real property. GKH amended its claim on February 9, 2011, to increase the amount owed to $750,000 and reflected that its collateral was real estate and “other.” It attached a promissory note dated October 24, 2008, and a pledge agreement dated October 13, 2008, between the debtor and GKH, pledging a number of equity interests of the debtor. [Bankr. Case. No. 08-16378, Claim 86-2], GKH also attached an amended pledge agreement dated October 29, 2008, which pledged additional equity interests including the debtor’s interest in Cleveland Auto Mall, LLC. GKH also attached three deeds of trust on certain real estate of the debtor pledged on October 24, 2008. [Bankr. Case. No. 08-16378, Claim 86-2, Parts 5, 6, and 7]. The amended pledge agreement recited that “Whereas, Pledgee has provided as of the date hereof to the Pledgor and the various Companies legal services in the amount of at least $385,000 (“Legal Services”); and Whereas, in order to induce Pledgee to continue to provide legal services to Pledgor and the Companies, Pledgor has agreed to pledge to Pledgee all of his interests as set forth on Exhibit A’ ”. The entities listed on Exhibit A were defined as the “Companies.” Id. Part 4, Amendment to Membership Interest and Stock Pledge Agreement at 1. The services to be provided would be “in an amount of at least $750,000.” Id.
In addition to the 50 Acre Lawsuit, on August 6, 2010, the Trustee also joined the Debtor in filing the Malpractice Lawsuit seeking damages for breach of fiduciary duty, conflicts of interest and conspiracy by GKH and Nelson Bowers and the transferee of the 50 acres. Like the 50 Acre Lawsuit, the complaint in Bradley County alleged that Cleveland Auto Mall, LLC (“CAM”) was owned by Mr. Bowers and the Debtor, that CAM owned 50 acres in Bradley County, Tennessee, that the property was worth $250,000 an acre, that ten acres had been transferred to NBR TOY Properties, LLC for $1,002,000 but CAM had not received payment for the transfer,that the Debtor was suffering severe health problems in December of 2009, that GKH[,] which had been counsel for the Debtor and his entities[,] had drafted the documents that transferred those acres to a limited liability company owned by Mr. Bowers, and that Mr. McKenzie signed a deed as a member of CAM conveying the 50 acres to Exit 20 Auto Mall, LLC, an entity owned at least in part by Mr. Bowers. Like the 50 Acre Lawsuit, the only allegation about the debt of CAM was that it owed $3,000,000 to SunTrust Bank. There was no allegation specifically addressing the value of the debtor’s equity at the time of the transfer.
The Trustee and his counsel fared no better in the Malpractice Lawsuit than they had in the 50 Acre Lawsuit. The complaint was met with motions to dismiss from GKH and Nelson Bowers. GKH first raised the defense of the statute of limitations. It argued that “if McKenzie suffered a legally cognizable injury resulting from the events described in the complaint as occurring on December 10, 2008, clearly McKenzie either knew, or should have known, the facts sufficient to give notice of the injury at that time since the allegation[s] of the complaint admit that McKenzie was intimately involved.” [Doc. No. 1248-1, Motion to Dismiss by GKH, at 11]. On November 2, 2010, Mr. Bowers also filed a motion to dismiss the first two counts based on the failure of the complaint to state a viable cause of action, the expiration of the statute of limitations, and lack of any fiduciary duty owed by Mr. Bowers. The motion sought dismissal of the third count of conspiracy between the defendants based on there having been no violation of the stay and the plaintiffs’ failure to state a viable cause of action with respect to fraudulent transfer, fraudulent misrepresentation or fraudulent concealment. [Doc. No. 1248-2, Motion to Dismiss by Nelson Bowers at 2-3]. On January 4, 2010, GKH joined the Bowers motion to dismiss.
The Trustee and the Debtor responded on January 5, 2010 with a Memorandum of Authorities and a Motion for Joinder of an Indispensable Party. The indispensable party was CAM. GKH contends that these January filings, made after the bankruptcy court’s December ruling that the 50 acres was not property of the estate, give rise to additional damages. GKH contends that the Trustee failed to acknowledge the “clear pre-clusive effect” of the bankruptcy court’s ruling in the 50 Acre Lawsuit. [Doc. No. 1307, Brief in Support of GKH’s Motion for Leave to File Action in Bradley County at 17]. On January 26, 2011, the Chancellor found that the affidavit filed by the Debtor and the Trustee was “not sufficient to raise the issue of tolling of the Statute of Limitations under the case law in Tennessee.” [Doc. No. 1248-5, Chancellor’s Order, January 25, 2011]. The Chancellor granted the motion to dismiss with respect to causes of action related to breaches of fiduciary duty and conflicts of interest based on his finding that those two causes of action had a one year statute of limitations. Id.
On February 22, 2011, the Trustee and the Debtor announced in open court that they were going to submit an order which would provide that the January 25, 2011 Order would be a final dismissal as to all defendants and all counts. That announcement was memorialized in an order entered on March 4, 2011. [Doc. No. 1200-2, Ex. B, Chancellor’s Agreed Order].
[Bankr. Case. No. 08-16378, Doc. No. 1387, pp. 5-8 (footnotes omitted) (quoting
In the Malpractice Lawsuit, the parties briefed the legal arguments regarding the statute of limitations for the Chancellor, and those arguments are included in the exhibits to HC Malpractice M/P Complaint. [Doc. No. 1-8, No. 1-13, pp. 15-18]. The Trustee did not appeal the Chancellor’s ruling. The Trustee now contends that the Chancellor erred in finding that a one year statute of limitations applied to his causes of action and cites 11 U.S.C. § 108(a) for the proposition that a bankruptcy trustee has two years to bring a suit for causes of action which accrued prior to the commencement of the case. Because of the filing of an involuntary followed by a voluntary ease, the Trustee contends that the commencement of the case for purposes of the creation of an estate is December 20, 2008, and the statute would not have run until December 20, 2010. See [Adv. Proc. No. 11-1118, Doc. No. 18, Trustee’s Memorandum in Support of Motion to Dismiss at 8]; [Doc. No. 5].
D. Related Malicious Prosecution/Abuse of Process Claims
After the court dismissed the 50 Acre Lawsuit, GKH filed a lawsuit alleging that the 50 Acre Lawsuit brought by the Trustee was malicious prosecution and an abuse of process. Grant, Konvalinka & Harrison, P.C. v. Banks, et al., Adv. Pro. 11-1016 (“50 Acre M/P Lawsuit”). GKH also brought a malicious prosecution and abuse of process suit against the Trustee and his counsel arising out of an action for the turnover of documents. Grant, Konvalinka & Harrison, P.C. v. LeRoy et al., Adv. Pro. 11-1110 (“Turnover M/P Lawsuit”). Both of these adversary proceedings have been dismissed by the court and are on appeal to the district court. The court dismissed the 50 Acre M/P Lawsuit on the basis that the Trustee was immune from suit. The court found that pursuing the 50 Acre Lawsuit — albeit unsuccessfully — was still within the scope of his duties.
E. Comparison of Two Malicious Prosecution Cases Arising from Claims Brought Based on the Same Operative Facts
While the HC Malpractice M/P Lawsuit Complaint is very similar to the one filed in the 50 Acre M/P Lawsuit, there are significant differences that require the court to consider whether the court’s prior rulings are equally applicable to this motion. First, the parties are different. In the 50 Acre Lawsuit, the only plaintiff was the Trustee pursuing bankruptcy avoidance actions to bring property into the estate which he alleged had been transferred from the Debtor. The 50 Acre M/P Lawsuit named only the Trustee and his counsel as defendants. In the Malpractice Lawsuit, there were two plaintiffs. The Trustee, joined by the Debtor, filed the complaint. Banks and Banks, P.C. represented the Debtor and the Trustee. Specifically, the complaint states that “Steve A. ‘Toby’ McKenzie ... brings this case in an individual capacity for the damages he has sustained after the filing of his bankruptcy, which are not part of his bankruptcy estate. He joins with the Plaintiff, C. Kenneth Still, Trustee in seeking relief and damages against the defendants for all pre-petition acts of the defendants.” [Doc. No. 1-1, Malpractice Lawsuit Complaint at 2, ¶ 4, Doc. No. 1-1],
Second, the causes of action which GKH alleges were maliciously pursued are different, as are the recoveries sought by the Trustee and the Debtor. In the 50 Acre Lawsuit the court found that the Trustee was trying to recover the 50 acres of real property transferred — not from the Debt-
The Trustee and the Debtor argued that the statute should be tolled for two reasons. First, they argued that the statute should be tolled because the malpractice had not been discovered at the time it occurred and that it should be tolled because of the Debtor’s diminished capacity. The Trustee also argued that he had two years after the commencement of the case to pursue the cause of action pursuant to 11 U.S.C. § 108. [Doc. No. 1-8]. GKH argued that the discovery rule should not apply since the Debtor signed the documents and that the defense of diminished capacity had not been sufficiently shown to cover the entire period needed for tolling. With respect to the Trustee’s tolling argument, GKH argued that the two-year statute granted in section 108 had been construed in bankruptcy case law to apply only to causes of action that accrued pre-petition. [Doc. No. 1-13]. GKH argued that all of the actions on which the Trustee’s claims were based occurred after the commencement of the involuntary case; therefore, only the one-year Tennessee statute of limitations applied. The Chancellor found that:
the Affidavit [filed by the Plaintiffs] [was] not sufficient to raise the issue of tolling the Statute of Limitations under the case law in Tennessee. Therefore, the Complaint of Plaintiffs that alleges breach of fiduciary duty and conflict of interest arising out of the signing of a deed on December, 2008 are hereby dismissed because these two causes of action have a one year Statute of Limitations.
[Doc. No. 1-14].
II. Jurisdiction
This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This matter is a core proceeding as it involves the administration of the estate and the liquidation of assets of the estate. 28 U.S.C. § 157(b)(2)(A) and (O). Specifically, malicious prosecution and abuse of process actions against a trustee are core proceedings. Kirk v. Hendon (In re Heinsohn),
III. Standard of Review
Federal Rule of Bankruptcy Procedure 7012(b) states that Federal Rule of Civil Procedure 12(b) applies to adversary proceedings. See Fed. R. Bankr.P. 7012(b). Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court “must read all well-pleaded allegations of the complaint as true.” Weiner v. Klais and Co., Inc.,
The Supreme Court has explained “an accepted pleading standard” that “once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.” Bell Atlantic Corp. v. Twombly,
[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the “grounds” of his “entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do, ... Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).
IY. Analysis
A. Immunity
The Trustee argues that he is immune from liability for activities taken in his capacity as a bankruptcy trustee. GKH asserts that the Trustee’s and the Debtor’s claims in the Malpractice Lawsuit were “meritless” as evidenced by the Chancery Court’s dismissal of the Malpractice Lawsuit and, in particular, by the Chancellor’s finding that the Malpractice Lawsuit against GKH was filed after the statute of limitations had run. GKH contends that the Debtor and Trustee should have known that the Malpractice Lawsuit was filed outside of the relevant statute of limitations. From that fact, GKH asks the court to infer that the bringing of such an action was for the purpose of extorting money from GKH, and therefore was an intentional and deliberate act of malicious prosecution. GKH then asks this court to conclude that the commission of intentional torts is outside the scope of actions that a trustee may take with immunity. Furthermore, GKH contends that the continued pursuit of claims for conspiracy to commit a fraudulent transfer or to violate the automatic stay, both of which require a finding of a transfer of property of the debtor or the estate, after a ruling was made in the 50 Acre Lawsuit that no property of the Debtor or the estate had been transferred, is an abuse of process. GKH asks the court to infer from the dismissal of the 50 Acre Lawsuit, that the Trustee knew or should have known that his remaining causes of action were also “merit-less,” and the continued pursuit of those causes of action was an abuse of process, another intentional tort which must also be outside the scope of the Trustee’s duties. In order to analyze GKH’s position, the court will examine the scope of the Trustee’s duties, consider whether bringing this suit was within that scope and finally, con
1. Trustee’s Duties under the Bankruptcy Code
This court has already reviewed the doctrine of immunity as it applies to trustees in bankruptcy in several opinions. See [Adv. Proc. No. 11-1016, Doc. No. 68; Bankr. Case No. 08-16378, Doc. Nos. 1354, 1387; Adv. Proc. No. 11-1110, Doc. No. 25]. The court begins its analysis of immunity with a review of some of the duties at the heart of a trustee’s obligations in representing a Chapter 7 bankruptcy estate. 11 U.S.C. § 704 requires the trustee to “collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest.” 11' U.S.C. § 704(a)(1). The trustee must further “investigate the financial affairs of the debt- or.” 11 U.S.C. § 704(a)(4). A trustee in bankruptcy is given a number of powers relating to his duties under 11 U.S.C. § 704. One of these powers is the “capacity to sue.” 11 U.S.C. § 323(b).
As for the estate he is charged with administering, it is created upon the filing of a petition in bankruptcy and includes “all legal or equitable interests of the debt- or in property as of the commencement of the ease.” 11 U.S.C. § 541(a)(1). Additional property may be added. The estate also includes “any interest in property that the trustee recovers under section ... 550 ... of this title” and “[a]ny interest in property that the estate acquires after the commencement of the case.” 11 U.S.C. § 541(a)(3) and (7). In a Chapter 11 case, the property the Debtor acquires postpetition before conversion or dismissal is also property of the estate. 11 U.S.C. § 1115(a).
One of GKH’s arguments supporting its contention that the Trustee is not entitled to immunity is that he was not pursuing property for the benefit of the estate, and was therefore acting outside the scope of his duties. This contention is based on the ruling that the 50 acres was not the Debt- or’s property. As part of this court’s analysis of the scope of the Trustee’s duties, the court must review what the Trustee was pursuing in the Malpractice Lawsuit and whether that was for the benefit of the estate. The Malpractice Lawsuit Complaint describes the Trustee’s role in the Malpractice Lawsuit. He was pursuing damages from GKH for their prepetition actions. Resolution of those claims may have required ownership of the 50 acres to be proven as one of their elements, but there was no action to seize or exert control over GKH’s property. To the extent that there are any damages sought that were not property of the estate, those claims were asserted by the Debtor. [Doc. No. 1-1, Complaint, Bradley County Chancery Court, No. 2010-CV-251 at 2],
To the extent that causes of action accrued prior to November 20, 2008, the date the involuntary case was commenced, the causes of action would be property of the estate. 11 U.S.C. § 541(a)(1). “ ‘It is well-established that the broad scope of § 541 encompasses causes of action existing at the time of the commencement of the bankruptcy action.’ ” In re Bailey,
[i]t is the Trustee who has the exclusive standing and capacity to sue and be sued on behalf of the bankruptcy estate under 11 U.S.C. § 323(b). The Trustee is appointed by the Bankruptcy Court to take charge of the debtor’s estate, collect assets, bring suit on the debtor’s claims against other persons, defend actions against the estate, and otherwise administer the estate.
Lawrence v. Jahn (In re Lawrence),
Moreover, “[t]he trustee is the representative of the estate, 11 U.S.C. § 323(a), and it ... is authorized, with or without court approval, to ‘commence and prosecute any action or proceeding in behalf of the estate in any tribunal.’ ” Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Applying 11 U.S.C. §§ 704(a)(1), 704(a)(4), 1115, and 323(b), the court concludes that the Malpractice Lawsuit related directly to the Trustee’s statutory duties of collecting assets, pursuing property of the estate and investigating the Debtor’s financial affairs. Thus, the court finds that the filing of the Malpractice Lawsuit was within the scope of the Trustee’s duties pursuant to the Bankruptcy Code.
2. Doctrine of Immunity as Applied to Bankruptcy Trustees
In Kirk v. Hendon (In re Heinsohn), the bankruptcy court addressed the immunity of a trustee from state law claims of malicious prosecution and defamation that the trustee defendant had removed to the bankruptcy court.
After determining that it had jurisdiction over the plaintiffs claims and that those claims constituted core proceedings, the bankruptcy court concluded that the trustee had absolute judicial immunity for his actions in making the criminal referral relating to the plaintiff. In a detailed opinion, the bankruptcy court reviewed the evolution of absolute immunity for trustees acting within the scope of their duties as defined by the Bankruptcy Code. The bankruptcy court concluded that the trustee’s duty to report possible violations of federal law was analogous to a prosecutor’s duties, and he was entitled to immunity for such actions. In re Heinsohn,
... the reasoning which supports full immunity from malicious prosecution actions for prosecutors applies equally to trustees:
[T]he risk of injury to the judicial process from a rule permitting malicious prosecution suits against prosecutors is real. There is no one to sue the prosecutor for an erroneous decision Not to prosecute. If suits for malicious prosecution were permitted, the prosecutor’s incentive would always be not to bring charges.
Similarly, if trustees are subject to suit and liability for their actions in reporting possible criminal violations to theprosecuting authorities, no trustee would ever make a referral. No trustee would run the risk of damages being assessed against him for making a referral based on often incomplete information which produces no monetary benefit to the trustee since a trustee’s primary obligation is to collect and liquidate assets of the estate, not report crimes. Yet a trustee is in a unique position to discover possible bankruptcy crimes since his duties require him to “investigate the financial affairs of the debtor.” To expose a trustee to the potential for liability for complying with his obligations under 18 U.S.C. § 3057 would emasculate an important public function which a trustee is in a distinct position to fulfill.
In re Heinsohn,
The bankruptcy court further acknowledged that other safeguards existed to protect against prosecutorial abuses, including “an investigation and independent review by the United States attorney” that serve to “lessen the possibility that an innocent party will be harmed by a misguided or even malicious trustee.” Id. After reviewing the landscape of analogous cases, the court concluded that:
[b]ased on the foregoing analysis that the function performed by a bankruptcy trustee in reporting possible criminal violations to the United States attorney is judicial in nature, that there are adequate safeguards to reduce the possibility of harm to an innocent party, and that subjecting a trustee to liability in this instance would deter the trustee from complying with his obligations under 18 U.S.C. § 3057, this court concludes that the defendant is protected by absolute immunity from the plaintiffs malicious prosecution action.
In re Heinsohn,
The district court affirmed the bankruptcy court’s decision in Kirk v. Hendon (In re Heinsohn),
[t]he Court agrees with the bankruptcy court the trustee’s obligation to report perceived violations of federal law to the United States attorney and to cooperate with any ensuing investigation and prosecution is a task integral to the judicial process which must be immune from suits for money damages. Government officials must be free to execute their duties without the threat of lawsuits. If lawsuits, in particular malicious prosecution and defamation actions such as in this case, are allowed against trustees for making criminal referrals, trustees will be less inclined to perform these duties and will hesitate in the future to do so, thereby lessening the impact and defeating the purpose of the criminal referral statute.
Id. at 245.
The present case does not involve a criminal referral, but the Sixth Circuit has found that similar policy reasons apply in cases where the trustee was engaged in civil actions. In Lowenbraun v. Canary (In re Lowenbraun), the Sixth Circuit reviewed whether a trustee was protected by immunity from claims of libel, slander, abuse of process, wrongful use of civil proceedings and the tort of outrage brought against him by the debtor’s wife in response to an unsuccessful motion for contempt brought by the trustee.
[The trustee’s attorney’s] role as counsel for the trustee permitted him to investigate [the debtor’s wife’s] transfer and to recover assets properly belonging to the bankruptcy estate. [The trustee’s attorney’s] actions, moreover, benefited the estate.... Any statements made in the course of [the trustee’s attorney’s] investigation and recovery effort were thus within the privilege. [The trustee’s attorney] is therefore entitled to immunity for his judicial statements.
Id. at 323.
Courts in other jurisdictions have also determined that bankruptcy trustees are entitled to immunity when performing duties outlined for them in the Bankruptcy Code. For example in Traina v. Blanchard, the district court concluded that:
[c]ourt appointed bankruptcy trustees are among those who play a fundamental role in the administration of the judicial process and therefore are entitled to immunity. “Judicial immunity not only protects judges against suit for acts done within their jurisdiction, but also spreads outward to shield related public servants, including ... trustees in bankruptcy....” Judicial employees enjoy absolute immunity for quasi-judicial acts done in the course of their employment. Quasi-judicial acts include those which play a fundamental role to the judicial process.... The role of a Chapter 7 bankruptcy trustee, appointed by a bankruptcy judge, is fundamental to the administration of the estate. A Chapter 7 trustee performing the required functions established by the Bankruptcy Code, [the trustee] is cloaked with the protection given to judicial employees carrying out duties in the scope of their employment.
No. 97-0348,
The Sixth Circuit and courts within this Circuit have consistently presumed that the trustee is acting within the scope of his authority as a trustee. For example, in In re Heinsohn, the district court, in affirming the bankruptcy court’s opinion, noted that “[t]he Court presumes such acts were a part of the trustee’s duties unless Plaintiff initially alleges at the outset facts demonstrating otherwise.”
This presumption strikes us as persuasive. Congress intended for the Bankruptcy Code to be comprehensive and for the federal courts to have exclusive jurisdiction over bankruptcy matters. A presumption in favor of the trustee, counsel, or other bankruptcy official that they were acting within the scope of their duties prevents a plaintiff ... from making unsupported allegations in an attempt to defeat Congress’s goal of providing exclusive federal jurisdiction over bankruptcy matters.
In Picard v. Chais, et al. (In re Bernard L. Madoff Investment Securities, LLC), the bankruptcy court granted the trustee’s motion to dismiss counterclaims of tortious interference with contract, tortious interference with a business relationship, conversion, and a Fifth Amendment claim asserted by the defendants.
In addressing whether the trustee was only protected by qualified immunity pursuant to an exception to the immunity doctrine in the Second Circuit, the bankruptcy court explained the policy behind trustee immunity. In re Bernard L. Madoff Investment Securities, LLC,
... sound policy counsels in favor of providing immunity for trustees in cases such as this one. A trustee should be shielded from liability for his lawful exercises of judgment and discretion, even if, in hindsight, such interpretations of law were incorrect. If immunity applied only to decisions that toned out to be proper, there would be no need for the doctrine of immunity. Here, a determination that the Trustee can be held liable would deter futuretrustees for fear they could be held liable for every discretionary decision.... The Court cannot impose liability on the Trustee for carrying out his duties in good faith and based on his business judgment.
Id. at 292-93 (emphasis added). See also, Weissman v. Hassett,
In Weissman the plaintiffs sought a finding of personal liability of the trustee for more than $25 million in damages. Weissman,
With respect to abuse of process, GKH further complains that the Trustee acted beyond the scope of his authority by continuing to pursue his remaining claims against GKH after Judge Cook dismissed Adversary Proceeding No. 10-1407. Judge Cook dismissed Adversary Proceeding No. 10-1407 on December 16, 2010. See [Doc. No. 1-5, Oral Transcript of Opinion in Adversary Proceeding 10-1407]. The deadline to appeal ran on December 30, 2010. The continued action on which GKH bases its abuse of process claim is the Trustee’s and Debtor’s submission to the Chancellor of a memorandum of authorities raising the tolling of the statute of limitations issue on January 5, 2011, only a week after the deadline to appeal Judge Cook’s ruling on property of the estate. See [Doc. No. 1-8]. That memorandum cited authorities which involved issues related to the transfer of the 50 acres which GKH contends was abusive. It also cited authorities on the statute of limitations issue which had not been decided at the time the memorandum was filed. The Chancellor rejected the plaintiffs’ tolling argument and dismissed two of the claims against GKH on January 25, 2011. See [Doc. No. 1-14, Chancellor’s Order]. The other allegedly abusive pleading is a motion to join an indispensable party which was filed after the December 16, 2010 Order. Before the joinder motion was decided, “[o]n February 22, 2011, the Trustee and the Debtor announced in open court that they were going to submit an order which would provide that the January 25, 2011 Order would be a final dismissal as to all defendants and all counts.
The Seventh Circuit noted in In the Matter of Linton:
[The plaintiffs] appear to believe that the fact that the trustee dropped the adversary action shows that it was groundless and therefore malicious. This of course is wrong. Many suits filed in good faith after careful precom-plaint investigation fizzle long before judgment, whether because further investigation fails to substantiate the allegations of the complaint or because the defendant presents compelling evidence in his favor that the plaintiff didn’t know about or because it turns out that the defendant doesn’t have sufficient assets to make the continued prosecution of the suit worthwhile. As long as there is probable cause to sue, there is no malicious prosecution.
The bankruptcy judge was satisfied that there was probable cause here.... Such a chain of transfers was bound to cause a light bulb to flash in a receiver’s or bankruptcy trustee’s brain. The trustee might well have been thought derelict not to pursue the claim of fraudulent conveyance to the extent that he did. The fact that [the trustee] couldn’t substantiate his suspicions did not retroactively remove his probable cause to sue.
3. Exceptions to Immunity
GKH argues that there are exceptions to the immunity granted to trustees. The court does not find that any of these exceptions apply to the Trustee.
(a) Breach of Fiduciary Duty
GKH argues that the Trustee’s conduct in pursuing the Malpractice Lawsuit was an intentional tort. It contends the deliberate and willful filing was without probable cause and was done with malice, and thus, is not protected by the immunity doctrine, citing Ford Motor Credit Co. v. Weaver,
As explained by the court in In re Heinsohn, there is a difference between claims
(b) Ultra Vires Actions
GKH does not argue that the immunity doctrine does not exist. Instead, it argues that it simply does not apply in this situation. It contends that the Trustee’s action in prosecuting the Malpractice Lawsuit Complaint was ultra vires or an action outside the scope of the Trustee’s duties under the Bankruptcy Code. As such, GKH contends that the Trustee’s actions are not protected by the doctrine of immunity as explained by In re Heinsohn. In that case, the court noted that absolute immunity generally protects “acts within the ambit of bankruptcy trustee’s official duties.” In re Heinsohn,
The court has already provided analysis distinguishing the cases upon which GKH relies in its prior opinions dismissing the 50 Acre M/P Lawsuit and the Turnover M/P Lawsuit. See [Adv. Proc. No. 11-1016, Doc. No. 68 at pp. 14-17, Adv. Proc. No. 11-1110, Doc. No. 25, at pp. 19-21]. In this case, GKH again relies on Teton Millwork Sales v. Schlossberg for support of its position that the Trustee was acting outside the scope of his authority.
The court finds the current case distinguishable from Teton Millwork. Here, the Trustee did not seize anyone’s property. He did not mislead anyone about his authority. His role and the Debtor’s roles as plaintiffs were set out in the paragraphs of the Malpractice Lawsuit Complaint defining the parties. [Doc. No. 1-1]. The Malpractice Lawsuit sought damages for conflicts and the breach of fiduciary duty. Finally, and perhaps, most importantly the aggrieved party with standing to complain about such an ultra vires action in the Teton Millwork case was Teton Millwork Sales, the owner of the property which the trustee had wrongfully seized. GKH has never alleged that it owned the real property that the Trustee was trying to recover in the 50 Acre Lawsuit.
GKH also cites Leonard v. Vrooman in support of its position.
In another case cited by GKH on this issue, the bankruptcy court noted, “[t]he situation in which trustees have been most commonly found to have acted outside of their authority is in seizing property which is found not to be property of the estate.” Schechter v. State of Illinois, Dep’t of Revenue (In re Markos Gurnee Partnership),
The only other authority GKH cites for the ultra vires exception involves a trustee’s operation of a business. In Ziegler v. Pitney, the Second Circuit addressed a tort claim of negligence against a bankruptcy trustee where the negligent acts of the employees of the trustee, who was operating a bankrupt railroad, resulted in the death of a child.
In summary, the Trustee’s alleged tort did not arise from the operation of a business. His participation in the Malpractice Lawsuit did not involve an intentional deprivation of property owned by GKH. It was a lawsuit brought to recover damages. As explained supra, the court
(c) Balancing of the Interests of Third Parties
GKH further asserts that the court should be concerned about the plight of third parties who are harassed by trustees in bankruptcy. Bankruptcy courts do recognize this concern. Rule 9011 is one of the safeguards to protect third parties from such abuse. In re Kids Creek Partners,
The court has found no authority for a balancing test exception to immunity. If there were such a test, it would have to be balanced against the strong policy reasons previously cited by this court as stated in the case law of this Circuit supporting trustee immunity. As an example of how strong the policy is, this Circuit favors dismissal upon immunity grounds, if applicable, as early as possible to avoid the unnecessary expense of discovery. For example, in Moore v. City of Hardman, the Sixth Circuit noted that in its prior decision of Wells v. Brown:
[w]e explained the policy rationale of the qualified immunity doctrine, i.e., the “desire to shield public officials from diverting their energies through the forced defense of challenges to their actions taken in their governmental capacities,” and the related requirement that those who are entitled to such immunity “should be granted that immunity at the earliest possible stage of the case.” This means resolving the immunity question prior to discovery.
Similarly, in this case the court concludes that subjecting the Trustee to discovery in this proceeding will serve as a distraction during the ongoing main bankruptcy matter and may preclude him from fully focusing on his duty relating to the administration of the Debtor’s estate. See,
(d) Waiver of Immunity as a Result of Not Obtaining Leave of this Court to File the Malpractice Lawsuit
GKH argues that the Defendants needed to obtain leave of this court in order to be immune from liability and failed to do so. While not in perhaps the specific form of an order authorizing the Trustee to pursue the Malpractice Lawsuit, the court notes that the Trustee did seek approval to employ Banks P.C. as special counsel to pursue actions against GKH and others. [Bankr. Case No. 08-16378, Doc. No. 749]. No objection was filed to the request and the court approved the application on July 1, 2010. [Bankr. Case No. 08-16378, Doc. No. 806].
Even if the approval of counsel was not specific authority, this court does not find that failure to obtain an order in this ease results in a waiver of immunity. A trustee’s authority may be derived from statutory authority as well as an order. See Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
In In re Kashani the court held that a bankruptcy trustee is an officer of the appointing court. As an officer of the court, the trustee is entitled to a form of derivative judicial immunity ... A trustee is entitled to such immunity only if the trustee is acting within the scope of authority conferred upon the trustee by the appropriate statute(s) or the court.
In In re Kashani the Ninth Circuit Bankruptcy Appellate Panel noted that “courts have established certain standards and instructions whereby the trustees can protect themselves by complying with these standards and, thus, gain judicial immunity. Those instructions include: the trustee should give notice to the debtor and obtain prior court approval of the proposed act; ...
Since the statement in In re Kashani upon which GKH relies, several courts have weighed in on the advisability of a trustee seeking court approval prior to taking specific actions in the course of administering the estate. For example, in In re NSCO, Inc., the bankruptcy court addressed whether the tenets of Mosser still applied:
Although Mosser continues to be cited, including by the First Circuit and other courts, the requirement of a case or controversy, coupled with the ripeness doctrine, inform that the Court must not render an advisory opinion or a premature one in an effort to insulate a trustee faced with a difficult question....
Moreover, at least one court, In re Freedlander Inc., The Mortg. People,95 B.R. 390 (Bankr.E.D.Va.1989), has questioned whether Mosser is still good law in light of the evolution of bankruptcy judges from bankruptcy referees to true judicial officers and the development of the United States Trustee system. Because of these changes in bankruptcy practice, the court refused to advise the trustee whether or not to pursue an appeal. The Freedlander court’s reasoning provides further support for removing a court from deciding issues that are more appropriately left to those responsible for administering bankruptcy estates.
Here, by filing the Malpractice Lawsuit, the Trustee sought to pursue a claim under 11 U.S.C. § 323(b) relating to the potential assets of the estate pursuant to 11 U.S.C. § 542(a)(1). The Trustee and his counsel were not engaged in conducting business of the estate that required the use of business judgment that would benefit from a court order authorizing them to proceed with a particular business strategy. Thus, for the reasons stated herein and for the reasons discussed in In re Freedlander, Inc. and In re NSCO, the court concludes the Trustee had no obligation to seek court approval in advance of the filing of the Malpractice Lawsuit as a prerequisite to this court finding the Tras-tee acted within the scope of his authority.
B. Failure to State a Claim for Relief
Based upon its view that the Trustee acted within the scope of his duties and is immune, the court concludes that GKH has failed to demonstrate that its complaint states a prima facie case of malicious prosecution or abuse of process against the Trustee. The court has already discussed very similar actions and provided legal
1. Malicious Prosecution
Under Tennessee law, a claim of malicious prosecution requires a plaintiff to demonstrate three elements: “(a) that a prior lawsuit or judicial proceeding was brought against the plaintiff without probable cause, (b) that the prior lawsuit or judicial proceeding was brought against the plaintiff with malice, and (c) that the prior lawsuit or judicial proceeding terminated in the plaintiffs favor.” Parrish v. Marquis,
In Buda the court adopted the description from the Restatement of Torts regarding the element of probable cause:
In order to establish the lack of probable cause in instituting a civil proceeding, it must appear that the suit was filed primarily for a purpose other than that of securing the proper adjudication of the claim in which the proceedings are based. If it is established that the party instituting the proceeding reasonably believes in the existence of the facts upon which the claim is based and has reasonable belief that under those facts the claim may be valid or has reasonable belief in reliance upon the advice of counsel, sought in good faith and given after full disclosure of all relevant facts within his knowledge and information, then probable cause is established.
Id. at 631-32 (quoting Restatement of Torts, Second §§ 674, 675).
In In the Matter of Linton the court considered the issue of probable cause for a trustee’s actions. It addressed the plaintiffs contention that the trustee’s dismissal of an adversary action indicated a lack of probable cause: “The bankruptcy judge was satisfied that there was probable cause here.... The fact that [the trustee] couldn’t substantiate his suspicions did not retroactively remove his probable cause to sue.”
In this action, although the Trustee did not persuade the Chancellor that the Bankruptcy Code tolled the Trustee’s statute of limitations, it does not necessarily follow that the Trustee lacked all probable cause for bringing the Malpractice Lawsuit. See In the Matter of Linton,
Specifically, with respect to the Trustee’s pursuit of the claim for breach of fiduciary duty/conflict of interest, GKH has failed to plead that there was a favorable termination. Those claims were dismissed by the Chancellor on the basis that they were barred by the statute of limitations. Such a ruling does not “reflect on the merits of an action.” Parrish,
2. Abuse of Process
Under Tennessee law to establish a claim of abuse of process, a plaintiff must show: “ ‘(1) the existence of an ulterior motive; and (2) an act in the use of process other than such as would be proper in the regular prosecution of the charge.’ ” Givens v. Mullikin ex rel. Estate of McElwaney,
[t]he test as to whether there is an abuse of process is whether the process has been used to accomplish some end which is without the regular purview of the process, or which compels the party against whom it is used to do some collateral thing which he could not legally and regularly be compelled to do.
Priest v. Union Agency,
GKH urges that the continued filing and prosecution of claims even beyond this court’s dismissal of the claims in the 50 Acre Lawsuit demonstrate a prima fa-cie case of abuse of process. However, the court has already discussed supra the legal support for the Trustee’s initial claims alleged in the Malpractice Lawsuit, as well as his legitimate arguments pertaining to the statute of limitations and his continued prosecution of the Malpractice Lawsuit for another month following the Chancellor’s January 25, 2011 decision. The Trustee and GKH were engaged in a legal dispute regarding the claims at issue in the Malpractice Lawsuit, as well as the timeliness of those claims. Although the Chancellor dismissed two of the claims against GKH, and the Trustee ultimately agreed to dismiss the remaining claim, the Trustee’s pursuit of a possible claim of the estate was not without a basis in the law. See discussion supra at IV.A.1-2. See also, In the Matter of Linton,
The court concludes that GKH has failed to establish a prima facie case for its abuse of process claim against the Trustee. Even taking all of GKH’s allegations as true, the court cannot infer that the plaintiffs’ filing of a memorandum of authorities to enable the Chancellor to reach a decision on the defenses to the motions to dismiss the Malpractice Lawsuit, and the further actions taken to dismiss the remaining claims were improper or demonstrate an ulterior motive. GKH has failed to allege that the Trustee engaged in process that would not be proper in the regular prosecution of a claim of the estate pursuant to 11 U.S.C. § 704(a)(1) and 11 U.S.C. § 323(b). In this case, the Trustee was taking the procedural steps necessary to be entitled to recoup additional assets for the estate if he was successful. The court would be discouraging the filing of adversary proceedings by denying the Trustee’s motion here when the filing of a lawsuit is precisely the process by which trustees are to seek recovery of assets of the estate. See 11 U.S.C. § 323(b); In re Lawrence,
Having concluded that the Trustee is immune from suit in this action, the court declines to consider the Trustee’s further arguments relating to pre-emption. This court’s analysis on that issue is not necessary to the decision here, and, as such, would constitute mere dicta.
Y. Conclusion
As explained supra, the court concludes that the Trustee is entitled to immunity from further prosecution of this adversary proceeding against him. GKH has further failed to state a prima facie case of eithér malicious prosecution or abuse of process against the Trustee. The Trustee’s motion to dismiss will be GRANTED.
A separate order will enter.
Notes
. All citations to docket entries pertain to docket entries for Adversary Proceeding 11-1121, unless otherwise noted.
. GKH asserts that there is no order appointing Mr. Still as the Chapter 7 trustee following the Chapter 7 conversion. See [Adv. Proc. No. 11-1118, Doc. No. 21, p. 2], incorporated by reference by [Doc. No. 8], Although a bankruptcy court issues an order appointing a Chapter 11 trustee, the court does not issue an order appointing an interim trustee in a Chapter 7. The U.S. Trustee appoints the interim Chapter 7 trustee who becomes the trustee unless there is an objection or an election. See 11 U.S.C. § 701(a)(1). The docket in the Debtor’s main bankruptcy case indicates that the U.S. Trustee convened a meeting of creditors after the conversion, and an amended notice was sent to creditors reflecting that Mr. Still was the Chapter 7 trustee in the case. [Bankr. Case No. 08-16378, Doc. No. 792],