Wednesday, August 08, 2007

9th Circuit Holds Trustee Bringing Preference Action Not Opposing Party in Creditor's Counterclaim Action

Per In re Adbox, Inc., 488 F.3d 836, 48 Bankr.Ct.Dec. 89, Bankr. L. Rep. P 80,960, 07 Cal. Daily Op. Serv. 6367, 2007 Daily Journal D.A.R. 8188 (9th Cir.(Cal.) Jun 04, 2007) (NO. 05-55158):
A counterclaim under Rule 13 must be against an "opposing party." Fed.R.Civ.P. 13(a), (b). Thus, a party sued by a trustee may assert a counterclaim against that trustee, but only if the trustee is an "opposing party" within the meaning of Rule 13.

It is well-established that when a party sues in his representative capacity, he is not subject to counterclaims against him in his individual capacity. See Pioche Mines Consol., Inc. v. Fidelity-Philadelphia Trust Co., 206 F.2d 336, 337 (9th Cir.), cert. denied, 346 U.S. 899, 74 S.Ct. 225, 98 L.Ed. 400 (1953) (recognizing the "rule that a counterclaim against a trustee in his individual capacity, where he has sued as a fiduciary only, is not permissible inasmuch as it is not a counterclaim against an 'opposing party,' as contemplated by Rule 13"); see also 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1404 (2d ed.1990); cf. Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 543 n. 6, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986) ("Acts performed by the same person in two different capacities are generally treated as the transactions of two different legal personages." (quoting F. James & G. Hazard, Civil Procedure § 11.6 (3d ed.1985) (internal quotation marks omitted))).

The question presented here, however, is whether the trustee is an "opposing party" when he has brought a preference action that belongs to the bankruptcy estate and not to the debtor, but the counterclaim alleges causes of action that could have been brought against the debtor prior to its bankruptcy filing. We hold that he is not. The Metcalfs styled their counterclaim as against Golden "in his capacity as Chapter 7 trustee for the estate of Adbox," but their allegations concerned the conduct of Wernerdal and Adbox prior to Adbox's bankruptcy filing. While the Metcalfs presumably sought to recover from Adbox's assets in bankruptcy, the trustee would have to stand in the shoes of the debtor to defend against the counterclaim. This would be a representative capacity different from the representative capacity in which a trustee brings a preference action, because a preference action belongs specifically to the bankruptcy trustee and could not have been brought by the debtor prior to its bankruptcy filing. Moreover, if the Metcalfs' allegations are correct, and Adbox did transfer assets in order to shield them from its creditors, then it was the trustee's duty to represent the interests of all creditors to the Adbox estate (including the Metcalfs' interest) by recovering those assets through a fraudulent transfer action under 11 U.S.C. § 548. In his § 547 preference action, however, the trustee was not representing all of the creditors' interests, but rather the interests of all of the creditors other than the Metcalfs. Therefore, under the allegations of the Metcalfs' counterclaim, the trustee was not an "opposing party" within the meaning of Rule 13 and the counterclaim was properly dismissed. FN1

FN1. We do not foreclose the possibility that under different circumstances, Rule 7013 might permit a creditor to bypass the proof of claim process provided by 11 U.S.C. §§ 501-02 and Rule 3001 via a counterclaim, but in this case the district court correctly affirmed the bankruptcy court's dismissal of the counterclaim for failure to satisfy the "opposing party" requirement of Rule 13. See Collier on Bankruptcy § 7013.03 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.2006).


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