Crawford v. Franklin Credit Mgmt Corp.

2nd Cir. Court of Appeals, Docket No. 13-2514, Decided July 11, 2014
Reversed district court on dismissing TILA and common law fraud claims, based on estoppel and lack of standing. Affirmed denial of plaintiff's motion for summary judgment and granting defendants' motion for summary judgment on other claims. Remanded for proceedings on TILA and common law fraud claims
Procedural context:
Appeal from denial of Fed.R.Civ.P. 60(b) motion seeking relief from district court order dismissing former debtor's action asserting claims not scheduled in her prior, dismissed chapter 13 case.
Of import here (fn. 1) , the Court of Appeals for the 2nd Circuit reversed the dismissal of a former debtor’s (the “Debtor”) TILA and common law fraud action (the “Action”). The Debtor failed to schedule these and other claims in her dismissed chapter 13 case (the “Case”). The Debtor saw her Case’s dismissal re-vesting her with the Action’s claims. The district court’s basis for dismissing the Action was the Debtor’s failure to schedule these claims in her Case: a.) denied the Debtor standing to assert them as they could only be asserted by her trustee; and b.) estopped her from asserting the claims. Code § 349 vs. Code § 554 In summary, the Court of Appeals found that the district court incorrectly viewed Bankruptcy Code (“the Code’) § 554 (Abandonment of property of the estate) overriding Code § 349 (Effect of dismissal). The district court denied the Debtor standing to start the Action because “unscheduled assets can only re-vest in the debtor by the operation of law." Crawford v. Franklin 10 Credit Management Corp., 2011 WL 1118584 *14 (S.D.N.Y. 2011). Despite the “plain reading” of Code § 349(b)(3) revesting the estate’s property “in the entity in which such property was vested immediately before the commencement of the case,” Id., at *13, the district court added Code § 554 as preventing that re-vesting. Code § 554(c) provides that, unless the court orders otherwise, "any property scheduled. . .not otherwise administered” when the case is closed “is abandoned to the debtor and administered. . .” The district court relied on Code § 554(d) which provides that estate property which is neither abandoned nor administered in the case “remains property of the estate." Id., at *14. The district court saw the unscheduled claims remaining with the Debtor’s bankruptcy estate, created by Code. So, it found the Debtor lacked standing to assert them in the Action. The 2nd Circuit said Code § 554 “has no applicability after a dismissal.” It saw Code § 349 providing that, “unless the bankruptcy court for cause orders otherwise, ‘a dismissal of a case . . . revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case," Code § 349(b)(3). “Thus, if the debtor owned the property prior to the commencement of the 13 bankruptcy case, a dismissal returns that property to the debtor.” The Court of Appeals saw Code 349(b)(3) not distinguishing assets listed in a debtor's schedules from those not listed. “[W]”hat is revested in the immediately pre-petition owner or owners is "the property of the estate." Citing Code 349(b)(3). The 2nd Circuit found that Code § 349 operated to re-vest the Debtor with the Action’s claims. So, she had standing to commence the Action. No Estoppel The district court did not specify what form of estoppel applied. The parties agreed that the district court intended judicial estoppel. The 2nd Circuit found judicial estoppel did not apply. The Debtor’s schedules in her Case did omit the claims the Action asserted. However, the bankruptcy court never ruled relating to the Debtor’s Action’s “claims or to her assets generally.” So, there was no risk of inconsistent adjudications. Absent a risk of inconsistent ruling, the 2nd Circuit saw no basis for judicial estoppel. fn. 1 The 2nd Circuit also discussed the propriety of denying the Debtor’s motion for summary judgment on certain non-bankruptcy claims and granting the defendants’ motion for summary judgment on other non-bankruptcy claims.
Kearse, Jacobs, and Lynch

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