Michael Bibbs, L.D. Mason, and M.J. Construction Co., Inc. v. Community Bank

Appellants Michael Bibbs, L.D. Mason, and M J Construction Co, Inc., appeal
from a summary judgment in favor of appellee Community Bank. The circuit court ruled
that appellants lacked standing to sue the Bank and that their amended complaint, naming
additional plaintiffs who purportedly had standing, was time-barred and did not relate back
to the original filing. We affirm.

In 2000, Bibbs, Mason, and M J Construction purchased 120 acres in Lonoke
County for subdivision development. They financed the purchase with a three-year,
$375,000 loan from the Bank, and the Bank took a mortgage on the property as security.

The loan document provided that a final balloon payment for the unpaid balance was due
on April 25, 2003. But, according to Bibbs, he did not expect to pay in accordance with
the loan's written terms because his prior dealings with the Bank would have permitted
him to roll the balance over into a new loan.

By early 2003, the Bank showed every intention of enforcing the terms of the loan
and was concerned about appellants' ability to make the upcoming balloon payment.
When appellants failed to pay, the Bank sued for foreclosure on August 1, 2003. During
this same period, the Bank filed several replevin and foreclosure actions against appellants
and a related company, Solomon Investments, Inc., on other loans totaling about
$700,000. On August 25, 2003, Bibbs filed Chapter 7 bankruptcy. Mason filed Chapter 7
bankruptcy on February 8, 2005, and filed Chapter 13 bankruptcy some months later.
On August 8, 2005, appellants, through attorney James H. Penick III, sued the
Bank for breach of the covenant of good faith, breach of fiduciary duty, fraud, conversion,
unjust enrichment, and intentional infliction of emotional distress. They alleged that the
Bank engaged in numerous acts of misconduct and forced them into bankruptcy. The
Bank answered that appellants lacked standing to file suit.

On February 13, 2007, the Bank moved for summary judgment on the standing
issue, arguing that Bibbs's and Mason's bankruptcy trustees had the exclusive right to
prosecute the lawsuit. Appellants amended their complaint on March 22, 2007, to include
their bankruptcy trustees as plaintiffs. They maintained in their response to the motion for
summary judgment that they (appellants) were the appropriate parties before the court but
that "the claims have been, and continue to be pursued on behalf of the estate." They
attached an affidavit from Bibbs's trustee, James Dowden, which stated: 1) during
Dowden's tenure as trustee he "became aware of the Debtors' assertion that they had a
cause of action against Community Bank"; 2) that this led to the hiring of attorney James
Penick to pursue the claim, for which Dowden obtained the bankruptcy court's
permission in September 2005 (after appellants' suit was filed); 3) that Dowden recorded
the lawsuit as a potential asset of the bankruptcy estate in December 2005; 4) that the
claim was "being pursued on behalf of the Chapter 7 bankruptcy estate by Mr. Penick as
special counsel to the Trustee"; 5) that "this is the proper way of handling such litigation";
6) that, if the claim were settled and approved by the bankruptcy court, the funds would
be payable to the bankruptcy estate. Appellants also argued that the Bank waited too long
to assert its standing argument and that, in any event, M J Construction remained as a
proper party.

The Bank moved to dismiss the amended complaint on the ground that it was filed
outside the three-year statute of limitations. The Bank also filed a certificate from the
Secretary of State reflecting that M J Construction's corporate charter was revoked on
December 31, 2003, and not reinstated to good standing until April 9, 2007.

On June 4, 2007, the circuit court granted the Bank's motion for summary
judgment. The court ruled that 1) Bibbs's and Mason's claims were the property of the
bankruptcy estate and could only be filed by the bankruptcy trustees; 2) therefore, neither
Bibbs nor Mason had standing to file the original complaint; 3) by the time the amended
complaint was filed adding the trustees as plaintiffs, the statute of limitations had run; 4)
the amended complaint did not relate back to the original filing because the original
complaint was void ab initio; 5) M J Construction lacked standing because it was not a
corporation in good standing on the date the complaint was filed. Appellants appeal from
this order.

Standing

Appellants argue that the trial court erred in ruling that Bibbs and Mason lacked
standing to file the original complaint on August 8, 2005. 1 Standing is a matter of law and
is reviewed de novo on appeal. See Pulaski County v. Ark. Democrat-Gazette, 371 Ark. 217,
___ S.W.3d ___ (2007).

When a debtor commences a Chapter 7 bankruptcy, an estate is created comprised
of all the debtor's legal and equitable interest in property. 11 U.S.C. § 541(a)(1) (2007).
Bankruptcy estate property is broadly defined to encompass conditional, future,
speculative, and equitable interests, and includes all causes of action the debtor could have
brought at the time of the bankruptcy petition. U.S. v. Transp. Admin. Servs., 260 F.3d
909 (8th Cir. 2001). See also Fields v. Byrd, 96 Ark. App. 174, 239 S.W.3d 543 (2006);
Vickers v. Freyer, 41 Ark. App. 122, 850 S.W.2d 10 (1993). When a trustee is appointed to
administer the property of the estate in bankruptcy, he has the exclusive right to prosecute
causes of action that are the property of the bankruptcy estate. 11 U.S.C. §§ 323, 704(a)(1)
(2007); Fields v. Byrd, supra.

Bibbs argues first that his causes of action accrued after he filed bankruptcy. If he
were correct, the lawsuit would belong to him rather than the bankruptcy estate. Our
reading of the complaint and Bibbs's deposition, however, convinces us that Bibbs's causes
of action accrued prior to his filing bankruptcy. First, the core of Bibbs's complaint is that
the Bank forced him into bankruptcy, which necessarily entails pre-bankruptcy
misconduct. Secondly, the numerous incidents of wrongdoing on which Bibbs's causes of
action were based generally occurred before Bibbs filed bankruptcy on August 25, 2003.
Bibbs's causes of action were viable at that point. See Courtney v. First Nat'l Bank, 300 Ark.
498, 780 S.W.2d 536 (1989) (holding that a cause of action accrues the moment the right
to commence the action comes into existence). The fact that some of the Bank's alleged
misconduct pertaining to these causes of action streamed into latter 2003 and early 2004
does not change our decision. The causes of action themselves accrued prior to the
bankruptcy filing and, therefore, were the property of the bankruptcy estate. Fields v. Byrd,
supra.

We further note that Bibbs's argument on this point is directly contrary to his
contention below that "the claims have been, and continue to be pursued on behalf of the
estate." It is also contrary to the affidavit of Bibbs's trustee, which stated that the lawsuit
was being pursued on behalf of the Chapter 7 bankruptcy estate and that, if the lawsuit
were settled, the funds would be payable to the bankruptcy estate. If these matters are
taken at face value, the claim belongs to the bankruptcy estate, in which case the trustee
had the exclusive right to prosecute it. Fields v. Byrd, supra.

Bibbs also argues that he had standing to sue because Trustee Dowden ratified his
filing of the complaint. He cites Bratton v. Mitchell, Williams, Selig, Jackson, & Tucker, 302
Ark. 308, 788 S.W.2d 955 (1990), where the debtor, Bratton, filed a claim that should
have been filed by his bankruptcy trustee. Our supreme court stated:
In this case, there is no evidence that the bankruptcy trustee abandoned this claim
or that the trustee joined in or ratified Bratton's filing of this complaint in circuit
court. In fact, the evidence in the record indicates the contrary.
Id. at 309, 788 S.W.2d at 956 (emphasis added). Bibbs interprets this passage to mean that a
trustee may ratify the debtor's filing of a claim belonging to the bankruptcy estate. We
decline to assign such import to Bratton's singular mention of ratification. The Bankruptcy
Code and case law are uniform in providing that the bankruptcy trustee has the exclusive
right to prosecute lawsuits belonging to the estate. See 11 U.S.C. §§ 323, 704(a)(1) (2007);
Fields v. Byrd, supra. The only notable exception is where the trustee abandons the claim.
See 11 U.S.C. § 554(a) (2007); Vreugdenhil v. Hoekstra, 773 F.2d 213 (8th Cir. 1985).
Clearly, Trustee Dowden has not abandoned this lawsuit. His affidavit states that the suit is
being pursued on behalf of the estate.

We turn now to Mason's argument that the laws regarding a trustee's exclusive
right to administer estate property do not apply to him because he filed Chapter 13
bankruptcy on August 15, 2005, and October 16, 2005. Mason is correct that, under a
Chapter 13 filing, the debtor makes a plan of repayment rather than liquidates his assets,
and the debtor's property remains in his hands instead of passing to the trustee. David
Epstein, BANKRUPTCY § 1-8 (1993). See also 11 U.S.C. § 1302(b)(1) (2007); 11 U.S.C. §
704 (2007); Historical Notes to 11 U.S.C. § 323 (2007). However, Mason's first
bankruptcy filing was under Chapter 7 on February 8, 2005, which was undisputedly after
his causes of action accrued. Therefore, at the moment of his Chapter 7 filing, the lawsuit
became an asset of his bankruptcy estate to be administered by the trustee. 11 U.S.C. §
541(a)(1) (2007).

Mason contends, however, that, because he scheduled the lawsuit as an asset in his
Chapter 7 bankruptcy, and the bankruptcy was later closed without the suit having been
administered, the suit was "abandoned" to him. See 11 U.S.C. § 554(c) (2007) (providing
that, when a Chapter 7 estate is closed and scheduled property has not been administered,
the property is abandoned to the debtor). We decline to consider this argument. First,
Mason makes the argument for the first time in his reply brief. See Abdin v. Abdin, 94 Ark.
App. 12, 223 S.W.3d 60 (2006) (holding that we do not consider arguments raised for the
first time in a reply brief). Secondly, Mason did not raise his section 554(c) argument
below, and we do not consider arguments raised for the first time on appeal. Laird v. Weigh
Syst., 98 Ark. App. 393, ___ S.W.3d ___ (2007).

Finally on the standing issue, appellants attempt to distinguish Fields v. Byrd, supra,
on which the trial court relied. There, the debtor's tort claim accrued in 1999. In 2000,
she filed bankruptcy without listing the potential lawsuit as an asset. She filed her suit in
2001. We held that the debtor had no standing to sue because the cause of action belonged
to the bankruptcy estate. Appellants argue that, unlike the debtor in Fields, they did not
conceal their lawsuit from their bankruptcy trustees. But that factor was not crucial to our
holding in Fields. A debtor's accrued cause of action becomes the property of the
bankruptcy estate at the time the bankruptcy is commenced, regardless of whether it was
scheduled.

For the above reasons, we affirm the trial court's ruling that Bibbs and Mason
lacked standing to file the original complaint. 2

Relation Back

Because Bibbs and Mason lacked standing to sue in 2005, their complaint was void
ab initio. See Fields, supra. Therefore, the 2007 amended complaint that added the trustees
as plaintiffs did not relate back to the original filing. See id. See also St. Paul Mercury Ins.
Co., 348 Ark. 197, 73 S.W.3d 584 (2002); Andrews v. Air Evac EMS, 86 Ark. App. 161,
170 S.W.3d 303 (2004). In light of these authorities, we affirm the trial court's ruling that
the amended complaint did not relate back and that, as a result, the statute of limitations
ran on the causes of action. 3

Summary Judgment Hearing

Due to conflicting correspondence from the court and opposing counsel, and some
understandable confusion, appellants' counsel did not appear at the summary-judgment
hearing. Appellants argue that this constituted reversible error. However, we cannot see
that appellants were prejudiced under the circumstances here. See Simmons v. Dixon, 96
Ark. App. 260, 240 S.W. 3d 608 (2006) (holding that we will not reverse in the absence of
prejudice).

In deference to the non-appearance of appellants' counsel, the trial court did not
hear arguments from the Bank's counsel at the hearing. Instead, the court relied on the
detailed and voluminous documents that the parties presented in support of their
respective positions. Appellants argue that the judge "admitted he had not read all the
documents submitted." In fact, the judge said that he "reviewed the pending motions, the
briefs in support thereof, has taken the opportunity to review some of the documents,
although I cannot conclusively say that I have exhaustively gone though each one." Our
review of the hearing transcript indicates to us that the judge was eminently familiar with
the facts and issues in the case.

Appellants also argue that the Bank was allowed to "submit evidence" at the
hearing in the form of a document concerning M J Construction. However, we cannot
see that the trial court considered any new evidence. Appellants appear to be referring to
the certificate from the Secretary of State's office demonstrating that M J's charter had
been revoked. But, that document was submitted to the trial court before the hearing.

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http://courts.arkansas.gov/opinions/2008a/20080305/ca07-808.pdf

Affirmed.

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