05-5988-cv Chartschlaa v. Nationwide Mutual
1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 -------- 4 August Term, 2006 5 6 (Argued: October 23, 2006 Decided: August 14, 2008) 7 8 Docket Nos. 05-5988-cv(L), 05-6603-cv(xap) 9 -----------------------------------------------------------X
10 PETER CHARTSCHLAA and ANGELA SAWICKI KING as personal 11 representatives of ALEX CHARTS, deceased, doing business as Alex 12 Charts Agency Inc. and Charts Insurance Associates, Inc.,1 13 14 15 Plaintiffs-Appellees-Cross-Appellants,
16 - v. - 17 18 NATIONWIDE MUTUAL INSURANCE COMPANY, NATIONWIDE MUTUAL FIRE 19 INSURANCE COMPANY, NATIONWIDE LIFE INSURANCE CO., NATIONWIDE 20 PROPERTY AND CASUALTY COMPANY, NATIONWIDE VARIABLE LIFE INSURANCE 21 COMPANY and COLONIAL INSURANCE COMPANY OF CALIFORNIA, 22 23 24 Defendants-Appellants-Cross-Appellees, 25 26 27 HELENA CHARTS and CHRISTOPHER L. GARCIA, 28 29 30 Plaintiffs. 31 32 -----------------------------------------------------------X 33
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Alex Charts died during the pendency of these proceedings, and by order of this Court filed June 26, 2008, Peter Chartschlaa and Angela Sawicki King were substituted as parties pursuant to Federal Rule of Appellate Procedure 43(a)(1).
1 Before: WINTER, McLAUGHLIN, and STRAUB, Circuit Judges. 2 Appeal from a judgment entered by the United States District 3 Court for the District of Connecticut (Droney, J.) upon a jury 4 verdict in favor of plaintiffs. REVERSED.
5 RAYMOND A. GARCIA (Jane I. Milas, 6 Nicole Liguori Micklich, on the 7 brief), Garcia & Milas, P.C., New 8 Haven, Connecticut, for Plaintiffs- 9 Appellees-Cross-Appellants. 10 11 CHRISTOPHER LANDAU, Kirkland & Ellis 12 LLP, Washington, D.C. (Michael 13 Shumsky, Kirkland & Ellis LLP, 14 Washington, D.C., Deborah S. Freeman, 15 Ann M. Siczewicz, Bingham McCutchen 16 LLP, Hartford, Connecticut, on the 17 brief), for Defendants-Appellants- 18 Cross-Appellees. 19 20 -----------------------------------------------------------X 21 22 Per Curiam:
23 Defendants-Appellants-Cross-Appellees Nationwide Mutual 24 Insurance Company, Nationwide Mutual Fire Insurance Company, 25 Nationwide Life Insurance Company, Nationwide Property and Casualty 26 Company, Nationwide Variable Life Insurance Company, and Colonial 27 Insurance Company of California (collectively, “Nationwide”), 28 appeal from a judgment entered by the United States District Court 29 for the District of Connecticut (Droney, J.) upon a jury verdict in 30 favor of Plaintiffs-Appellees-Cross-Appellants Alex Charts and 31 Charts Insurance Associates, Inc. (“CIAI”). Charts and CIAI 32 cross-appeal the district court’s denial of their motion for 33 prejudgment interest and grant of Nationwide’s motion for judgment
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1 as a matter of law on one of their claims. 2 Charts and CIAI, former sellers of Nationwide insurance 3 policies, sued on several claims arising out of Nationwide’s 4 termination of their relationship. For the reasons that follow, we 5 hold that those claims belong to the bankruptcy estate of Alex 6 Charts and not to either of the plaintiffs. Accordingly, we 7 reverse the judgment of the district court and direct that judgment 8 be entered in favor of Nationwide. 9 BACKGROUND 10 We assume familiarity with the district court’s and our prior 11 decisions in this case. See Charts v. Nationwide Mut. Ins. Co., 16 12 F. App’x. 44 (2d Cir. 2001) (“Charts I”;) Charts v. Nationwide Mut. 13 Ins. Co., 300 B.R. 552 (D. Conn. 2003) ("Charts II"); Charts v. 14 Nationwide Mut. Ins. Co., 397 F. Supp. 2d 357 (D. Conn. 2005) 15 (“Charts III”). We recount here only those facts necessary for 16 resolution of this appeal. 17 Since at least 1979, Alex Charts has been in the business of 18 selling Nationwide insurance. He started as an individual agent 19 with an individual agent’s agreement. In 1986, Charts entered into 20 a new agency agreement (the “Corporate Agency Agreement”) with 21 Nationwide through a corporation called Alex Charts Agency, Inc. 22 (the “Old Agency”), of which Charts was the sole shareholder. In 23 October 1992, Charts formed CIAI as a new corporate entity for his 24 insurance business. That month, the officers and directors of 25 CIAI, including Charts, held an organizational meeting. Charts
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1 prepared the incorporation papers for CIAI, but delayed filing 2 them. 3 In December 1992, Charts and his wife filed a Chapter 7 4 bankruptcy petition in the United States Bankruptcy Court for the 5 District of Connecticut. As required in a Chapter 7 bankruptcy 6 proceeding, Charts filed various schedules of assets and 7 liabilities. See 11 U.S.C. § 521. Charts listed the Old Agency as 8 the name of his insurance business. He did not list his interest 9 in CIAI as an asset of his estate. 10 In January 1993, Charts formally filed the certificate of 11 organization for CIAI with the Connecticut Secretary of State. 12 In May 1993, while still in bankruptcy proceedings, Charts 13 executed a new agency agreement with Nationwide on behalf of CIAI 14 (the “CIAI Agreement”). The CIAI Agreement, which had an effective 15 date retroactive to January 1, 1980, allowed CIAI to market and 16 service Nationwide insurance contracts as Charts had done in the 17 past individually and through the Old Agency. 18 In 1995, Nationwide launched an internal investigation into 19 potential misconduct by its Connecticut agents. During that 20 investigation, several agents alleged that Charts engaged in 21 prohibited business practices. 22 In January 1996, Nationwide terminated the CIAI Agreement. 23 In February 1996, Charts obtained an order of discharge in his 24 bankruptcy proceedings, and the bankruptcy court closed the case.
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1 In August 1997, Charts and CIAI sued Nationwide in the United 2 States District Court for the District of Connecticut (Droney, J.). 3 The plaintiffs alleged that Nationwide terminated the CIAI 4 Agreement because of Charts’s age and in retaliation for Charts’s 5 own reporting of misconduct by Nationwide employees to Nationwide 6 management. The plaintiffs contended that these actions violated 7 the covenant of good faith and fair dealing implied in the CIAI 8 Agreement as well as Connecticut statutory law. Nationwide moved 9 for summary judgment on the ground that the CIAI Agreement and any 10 cause of action based on that contract were part of the bankruptcy 11 estate. 12 In August 2000, a Magistrate Judge (Garfinkel, M.J.) 13 recommended that the district court grant Nationwide’s motion, 14 finding that Charts’s claims belonged to the bankruptcy estate and 15 that his failure to disclose the existence of CIAI in the 16 bankruptcy case was “clearly not inadvertent.” In September 2000, 17 the district court adopted this recommendation. Charts appealed 18 that judgment to this Court, and we vacated the judgment, without 19 reaching the merits, on the ground that the estate should have been 20 joined as a party to the suit. Charts I, 16 F. App’x at 44. 21 On remand, the district court reopened the bankruptcy case for 22 the purpose of appointing a trustee to represent the estate’s 23 interests in this litigation. Nationwide thereafter renewed its 24 motion for summary judgment, iterating its position that the claims 25 belonged to the bankruptcy estate. The trustee then entered an
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1 appearance and expressed his intent to abandon the claims against 2 Nationwide under 11 U.S.C. § 554(a) by filing a notice of proposed 3 abandonment. Nationwide objected to the proposed abandonment. 4 At a December 2002 hearing, the trustee informed the district 5 court that he had entered negotiations to sell the claims to 6 Nationwide, and soon planned to file a proposed notice of sale of 7 the claims. On that basis, the trustee requested that the court 8 take no action with respect to the proposed abandonment. 9 In September 2003, the district court denied Nationwide’s 10 renewed motion for summary judgment, reversing its earlier 11 position. This time, the district court held that Charts owned the 12 disputed claims after all, because the claims arose after the 13 bankruptcy filing and such “post-petition” claims generally do not 14 belong to the estate. Charts II, 300 B.R. at 556-58. In its 15 ruling, the district court noted its understanding that the trustee 16 had sold, rather than abandoned, whatever interest it held in the 17 claims. Id. at 556 n.5. Thus, the court observed, “if the Court 18 were to hold that these claims were property of the estate, . . . 19 Charts would not have standing to assert them because any claim 20 owned by the estate is now held by Nationwide.” Id. In fact, 21 however, the proposed sale of the claims to Nationwide was never 22 finalized. 23 The case proceeded to a jury trial. At trial, Charts 24 testified that CIAI was simply the new name and corporate identity 25 of the very same insurance business he had previously operated
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1 through the Old Agency:
2 Q: So that business from Alex Charts Agency, 3 Inc., the Nationwide policies for which that 4 company was receiving commissions, that was 5 all rolled over to the new company? 6 7 A: Everything stayed the same. . . . 8 9 . . . 10 11 Q: When you say everything stayed the same, am I 12 characterizing this fairly by essentially 13 saying—and tell me if I’m wrong—that all of 14 the business that you had been doing as Alex 15 Charts Agency, Inc. for which you were 16 receiving ongoing commissions, that . . . was 17 simply moved over to the new company, Charts 18 Insurance Associates, Inc.? 19 20 A: Yes. 21 22 Q. Did you have employees of Alex Charts Agency, 23 Inc.? 24 25 A. Yes. 26 27 Q. Did all of those individuals who were 28 employees of Alex Charts Agency, Inc. at the 29 time you wound down that business, that 30 corporation, become employees of Charts 31 Insurance Associates, Inc.? 32 33 A. Yes. 34 35 The jury returned a verdict for Charts on all counts,
36 awarding $2.3 million in damages. 37 Nationwide filed a post-verdict motion for judgment as a 38 matter of law. The plaintiffs moved for prejudgment interest and 39 for attorneys’ fees. The district court denied Nationwide’s 40 motion except as to the plaintiffs’ claim for breach of the 41 implied covenant of good faith and fair dealing; denied the
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1 plaintiffs’ motion for prejudgment interest; and awarded the 2 plaintiffs $750,000 in attorneys’ fees. Charts III, 397 F. Supp. 3 2d at 370, 372, 374, 385-86. 4 On appeal, Nationwide continues to press its argument that 5 the claims belong to Charts’s bankruptcy estate, and not to the 6 plaintiffs. We agree. Because ownership of the claims is a 7 threshold issue, we need not reach the numerous other arguments 8 raised in the appeal and cross-appeal. 9 DISCUSSION 10 This Court reviews de novo a district court’s resolution of 11 a motion for judgment as a matter of law under Federal Rule of 12 Civil Procedure 50(b), applying the same standard that the 13 district court was required to apply. Diesel v. Town of 14 Lewisboro, 232 F.3d 92, 103 (2d Cir. 2000). Thus, we “consider 15 the evidence in the light most favorable to the non-moving party 16 and give that party the benefit of all reasonable inferences from 17 the evidence that the jury might have drawn in that party’s 18 favor.” Id. Whether a cause of action belongs to a bankruptcy 19 estate is a question of law, which we review de novo. See In re 20 Swift, 129 F.3d 792, 795 (5th Cir. 1997). 21 Our analysis begins with 11 U.S.C. § 541(a)(1), which 22 defines the bankruptcy estate as including “all legal or 23 equitable interests of the debtor in property as of the 24 commencement of the case.” “It would be hard to imagine language 25 that would be more encompassing” than this broad definition. 4
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1 Collier on Bankruptcy ¶ 541.01 (15th ed. 2001). “[E]very 2 conceivable interest of the debtor, future, nonpossessory, 3 contingent, speculative, and derivative, is within the reach of § 4 541.” In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993). 5 Contractual rights clearly fall within the reach of this section, 6 see, e.g., Cohen v. Drexel Burnham Lambert Group, Inc. (In re 7 Drexel Burnham Lambert Group, Inc.), 138 B.R. 687, 701 (Bankr. 8 S.D.N.Y. 1992), as do causes of action owned by the debtor or 9 arising from property of the estate, see Seward v. Devine, 888 10 F.2d 957, 963 (2d Cir. 1989) 11 Given the wide scope of § 541, the debtor’s obligation to 12 disclose all his interests at the commencement of a case is 13 equally broad. See 11 U.S.C. § 521(a)(1)(B)(i), (iii) (requiring 14 debtor to “file . . . a schedule of assets and liabilities ... 15 and a statement of the debtor’s financial affairs”). Because 16 full disclosure by debtors is essential to the proper functioning 17 of the bankruptcy system, the Bankruptcy Code severely penalizes 18 debtors who fail to disclose assets: While properly scheduled 19 estate property that has not been administered by the trustee 20 normally returns to the debtor when the bankruptcy court closes 21 the case, undisclosed assets automatically remain property of the 22 estate after the case is closed. See 11 U.S.C. § 554(c), (d); 23 Collier, supra, ¶ 554.03. “A debtor may not conceal assets and 24 then, upon termination of the bankruptcy case, utilize the assets 25 for [his] own benefit.” Kunica v. St. Jean Fin., Inc., 233 B.R.
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1 46, 53 (S.D.N.Y. 1999). 2 Because assets within the estate are those that exist “as of 3 the commencement of the case,” 11 U.S.C. § 541(a), property 4 acquired by the debtor after the filing of a bankruptcy petition 5 generally does not become part of the estate. Benjamin Weintraub 6 & Alan N. Resnick, Bankruptcy Law Manual § 5:6 (5th ed. 2008). 7 However, “[a]fter-acquired” property will vest in the estate if 8 it is derived from property that was part of the estate as of the 9 commencement of the bankruptcy. See 11 U.S.C. § 541(a)(6) 10 (making “[p]roceeds, product[s], offspring, rents or profits of 11 or from property of estate” part of bankruptcy estate). Post- 12 petition property will become property of the estate only if it 13 is “sufficiently rooted in the pre-bankruptcy past.” Segal v. 14 Rochelle, 382 U.S. 375, 380 (1966)) (interpreting Bankruptcy Act 15 of 1898). 16 The plaintiffs argue that Charts had no duty to disclose the 17 existence of CIAI because it was not formally incorporated until 18 after the date of the bankruptcy petition, and therefore is not 19 part of the bankruptcy estate. We disagree. Charts readily 20 admitted in deposition testimony that CIAI was formed in October 21 1992, prior to filing his bankruptcy petition. Charts also 22 conceded that CIAI was incorporated simply to change the name of 23 his preexisting insurance business, and that this change occurred 24 in October 1992, when CIAI was organized. The Bankruptcy Code is 25 premised on full and complete disclosure of the debtor’s
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1 finances. A debtor who “elects to avail himself of the benefits 2 of the federal bankruptcy laws by the filing of a petition . . . 3 can no longer expect to have any financial secrets.” In re 4 Trout, 108 B.R. 235, 238 (Bankr. D.N.D. 1989). The existence of 5 CIAI—the formal incorporation of which Charts delayed until soon 6 after filing for bankruptcy and which was intended as simply a 7 renamed successor to Charts’s Old Agency—should have been 8 disclosed to the bankruptcy trustee.2 And because CIAI’s 9 existence was not disclosed, it remains part of the bankruptcy 10 estate. See Kunica, 233 B.R. at 53. 11 Further, the CIAI Agreement is also an asset of the 12 bankruptcy estate, even though it was not signed until May 1993. 13 During his deposition, Charts conceded that Nationwide issued a 14 new contract to CIAI at his request because of the change of his 15 business’s name. Even more telling, the CIAI Agreement had a 16 retroactive effective date of January 1, 1980—the approximate 17 date that Charts began doing business with Nationwide. The 18 parties thus perceived the CIAI Agreement as merely a
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When he filed for bankruptcy, Charts listed the Old Agency as an exemption under 11 U.S.C. § 522(d)(5), valuing the business at a mere $1. That provision allows debtors to exempt from the bankruptcy estate up to $11,200 in estate property. 11 U.S.C. § 522(d)(5). The plaintiffs have not argued that CIAI was subject to this exemption or that the CIAI Agreement is not a product of the bankruptcy estate by virtue of the exemption. In a dispute that has entered its second decade, we will not take up this argument for them. See Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998) (issues not sufficiently argued considered waived).
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1 continuation of their longstanding business relationship. See 2 Weintraub & Resnick, supra, § 5:6 n.1 (“It is important to 3 distinguish between property that is acquired after the case is 4 commenced and property that merely changes in form.”). 5 Accordingly, the CIAI Agreement is deeply rooted in the pre- 6 bankruptcy past, and should be considered part of the bankruptcy 7 estate. 8 Because the claims asserted by the plaintiffs arose from 9 CIAI and the CIAI Agreement, they are also property of the 10 bankruptcy estate, and those claims may not be brought by the 11 plaintiffs. 12 Finally, we reject the plaintiffs’ argument that the rights 13 in Charts’s insurance business were abandoned to Charts after the 14 trustee filed and served on creditors a notice of proposed 15 abandonment of the claims. Abandonment is not a process to be 16 taken lightly. Once an asset is abandoned, it is removed from 17 the bankruptcy estate, and this removal is irrevocable except in 18 very limited circumstances. See Catalano v. Comm’r, 279 F.3d 19 682, 686 (9th Cir. 2002). In light of the impact of abandonment 20 on the rights of creditors, a trustee’s intent to abandon an 21 asset must be clear and unequivocal. See In re Sire Plan, Inc., 22 100 B.R. 690, 693 (Bankr. S.D.N.Y. 1989). 23 Here, the trustee informed the district court that it 24 intended to sell the claims to Nationwide. This representation
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1 was inconsistent with the trustee’s previously evinced intent to 2 abandon the property to Charts. Indeed, the trustee specifically 3 requested that the court take no action on the abandonment issue 4 while the negotiations were pending. Although the sale was never 5 consummated, there is no indication that the trustee ever renewed 6 its request to abandon the claims. Under these circumstances, 7 the trustee’s intent to abandon the claims was ambiguous. Absent 8 an unambiguous intent to abandon estate property, the proposed 9 abandonment is not effective. 10 CONCLUSION 11 For the foregoing reasons, the judgment of the district 12 court is REVERSED. We direct the district court to enter 13 judgment for Nationwide.