In re Allied Sign Co.

280 B.R. 688, 2001 Bankr. LEXIS 1989, 2001 WL 1913169
CourtUnited States Bankruptcy Court, S.D. Alabama
DecidedJanuary 26, 2001
DocketNo. 99-10488-MAM-11
StatusPublished
Cited by3 cases

This text of 280 B.R. 688 (In re Allied Sign Co.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Alabama primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Allied Sign Co., 280 B.R. 688, 2001 Bankr. LEXIS 1989, 2001 WL 1913169 (Ala. 2001).

Opinion

ORDER GRANTING MOTION FOR LEAVE TO MAINTAIN STATE COURT ACTION

MARGARET A. MAHONEY, Chief Judge.

This case is before the Court on the motion of Allied Lenders, L.L.C. (Allied Lenders) for leave to maintain a state court action. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This motion is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). For the reasons indicated below, the Court is granting the motion.

FACTS

Allied Sign Company, Inc. (Allied Sign) filed a chapter 11 bankruptcy case on February 8, 1999. The debtor sought court approval of its choice of an accounting firm to handle its chapter 11 accounting needs. Terry Buck of Gibbons, Gibbons & Buck, P.C. was approved by the Court on February 24, 1999, which approval was ordered effective as of February 8, 1999. On February 9, 1999, Allied Sign filed a motion requesting to use cash collateral in which Allied Lenders had an interest. On March 3, 1999, an order was entered approving cash collateral use. It provided that the debtor would provide “certified” aging statements of accounts receivable upon which its use of cash collateral would be based. The order provided that the aging reports would be “verified by the Debtor’s CPA.”

On March 3, 2000, the Court converted the case to a chapter 7 case and appointed a trustee. The estate is being liquidated. On July 11, 2000, Allied Lenders filed a [691]*691suit in Mobile County Circuit Court against Gibbons, Gibbons & Buck, P.A. and Terry Buck for negligence, wantonness, misrepresentation and breach of contract arising out of the accountants’ alleged failure to accurately monitor and verify Allied Sign’s accounts.

On October 6, 2000, Gibbons, Gibbons & Buck and Terry Buck filed an answer to the complaint asserting that Allied Lenders needed to obtain bankruptcy court authority to proceed before instituting the suit as required by Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881). Allied Sign is now, nunc pro tunc, seeking that approval to the extent it is necessary.

LAW

The issue to be decided is whether this action should be allowed to proceed in state court. The Court concludes that (1) the state court action is not a “core proceeding” but rather a “related to” proceeding pursuant to 28 U.S.C. § 157(b); (2) bankruptcy court permission is required to bring the matter in state court; and (3) leave should be granted in this case.

A.

A core proceeding is one in which the matter at issue is one which “ could arise only in bankruptcy.” In re Toledo, 170 F.3d 1340, 1345 (11th Cir.1999). A proceeding is “related to” a bankruptcy case if the “ outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy.” Miller v. Remira (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir.1990). The Allied Lenders lawsuit does not affect the debtor’s assets or liabilities or any creditor relationships. It is a suit between nondebtors and would be paid from nondebtor assets. The case is “related to” a case under title 11 since it arises from a bankruptcy court order and a relationship created by the bankruptcy case.

The case is unlike the case of Southmark Corporation v. Coopers & Lybrand (In re Southmark Corporation), 163 F.3d 925 (5th Cir.1999), which involved a chapter 11 debtor who sued its court appointed examiner’s accountant for malpractice. The Fifth Circuit held that that proceeding was a core proceeding because the claim involved a request for denial of fees to Coopers for its work on the examiner’s behalf as well as recovery of monies from Coopers to replace an amount Southmark might have received from a third party absent reliance on Cooper’s advice. As stated above, this connection to the estate does not exist in this case. With no debtor assets or claims at issue and no allegation of sanctionable conduct by any professional, the relationship to Allied Sign’s case is not close. This Court is very concerned about compensation of professionals and the integrity of professionals involved in bankruptcy cases. To the extent it is ever shown that a professional’s actions damaged a case, or even might have, or that the validity of the bankruptcy process was compromised by a professional, the Court wants to take swift, prompt action. However, the Court is reluctant to act sua sponte, without all facts, as prosecutor and judge. The Court expects other professionals, the debtor and creditors and the Bankruptcy Administrator to bring improper conduct before this Court for fee disgorgement, malpractice claims, sanctions and/or criminal referrals. None of these actions have occurred in this case.1 Therefore, as matters stand, the case is [692]*692only a “related to” proceeding. This status, although not determinative of the outcome, gives the Court more reason to allow the case to go forward in. state court than if it were a core proceeding.

B.

As a result of an 1881 U.S. Supreme Court case, Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881), the general rule has arisen that “ before suit is brought against a receiver[,] leave of the court by which he was appointed must be obtained.” Id. at 127, 26 L.Ed. 672. This rule has been applied to bankruptcy trustees and other court appointed professional persons. Carter v. Rodgers, 220 F.3d 1249 (11th Cir.2000) (applying to trustee and sales agent). The exception to the rule as stated in 28 U.S.C. § 959 is that suits may be filed without court permission against trustees (and other court appointed professionals per Carter) “with respect to any of their acts or transactions in carrying on the business connected with such property.”

The cases which construe the meaning of this exception hold that the actions of consolidating, preserving, liquidating and holding assets of a debtor’s estate are not acts of “carrying on business.” E.g., Lebovits v. Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272 (2d Cir.1996); Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236 (6th Cir.1993); Carter, 220 F.3d at 1252. Actions of a court appointed professional which are normal business functions or related to normal business claims are the type excepted. E.g., Lehal Realty Assocs.,

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280 B.R. 688, 2001 Bankr. LEXIS 1989, 2001 WL 1913169, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-allied-sign-co-alsb-2001.