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Idearc Media LLC v. David J. Glassman

February 14, 2011

IDEARC MEDIA LLC, PLAINTIFF,
v.
DAVID J. GLASSMAN, DEFENDANT.



The opinion of the court was delivered by: Pollak, J.

MEMORANDUM

I.

Plaintiff Idearc Media LLC ("Idearc") publishes the Verizon Print Directories. In 2007, Idearc began publishing advertisements, in various phone directories, for defendant David Glassman's law office. On March 31, 2009, Idearc filed for Chapter 11 bankruptcy. In re Idearc Media LLC, No. 09-31836 (Bankr. N.D. Tex.). In May of 2009, Idearc's petition was consolidated with the bankruptcy proceedings of its parent company, Idearc, Inc. Id. (docket no. 4); see also In re Idearc, Inc., No. 09-31828 (Bankr. N.D. Tex. filed March 31, 2009). On December 22, 2009, the bankruptcy court confirmed a Joint Plan of Reorganization. In re Idearc Inc., et al.(docket no. 1639).

On February 17, 2010, Idearc filed a breach of contract action against Glassman in the Court of Common Pleas of Philadelphia County, demanding over $90,000 in damages. Idearc alleges that Glassman failed to pay any part of the fees he owed Idearc for advertising services.

The action was properly removed to this court on March 19, 2010, on diversity grounds, and Glassman filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), asserting that this court lacks subject matter jurisdiction because Idearc does not have standing. Glassman alternatively argues that Idearc's suit should be dismissed under the doctrine of judicial estoppel.

Glassman contends that Idearc does not have standing because it failed to disclose this cause of action during the bankruptcy proceedings. Thus, Glassman contends, the cause of action remains property of the bankruptcy estate and cannot be asserted by Idearc. Idearc concedes that it did not schedule this cause of action in its bankruptcy proceedings, but it argues that it was under no obligation to do so because the claim did not accrue until after it filed for bankruptcy.

II.

Glassman's Rule 12(b)(1) motion is a factual attack on subject matter jurisdiction because he alleges that certain facts outside the scope of the complaint demonstrate that Idearc lacks standing. See Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977) ("[W]e must emphasize a crucial distinction, often overlooked, between 12(b)(1) motions that attack the complaint on its face and 12(b)(1) motions that attack the existence of subject matter jurisdiction in fact, quite apart from any pleadings."). In assessing a factual attack on jurisdiction, "[t]he court may consider and weigh evidence outside the pleadings to determine if it has jurisdiction." Gould Elecs., Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000).

III.

Glassman's standing argument rests on an incomplete reading of the Bankruptcy Code and on caselaw that applies to Chapter 7 debtors and not to Idearc, a Chapter 11 debtor. The distinction in the standing analysis for each type of debtor was discussed extensively by the Bankruptcy Appellate Panel for the Ninth Circuit in Diamond Z Trailer Inc. v. JZ L.L.C., 371 B.R. 412 (9th Cir. BAP 2007). Under 11 U.S.C. § 521(1), a bankruptcy debtor-whether under Chapter 7 or Chapter 11-must file, inter alia, a schedule of assets and liabilities as well as a statement of financial affairs. Moreover, § 554(d), which also applies to both Chapter 7 and Chapter 11 debtors, mandates that, at the close of bankruptcy proceedings, unscheduled property is "not abandoned" to the debtor, and thus remains part of the estate. For Chapter 7 debtors, this means that failure to schedule a pre-petition asset or cause of action deprives the debtor of standing to pursue that claim for his or her own benefit in a non-bankruptcy proceeding. See In re Kane, __ F.3d __, 2010 U.S. App. LEXIS 25899, no. 09-4254, * 11 (3d Cir. 2010) ("[C]courts have held that where a [Chapter 7] debtor conceals an asset or fails to schedule it, the asset remains the property of the bankruptcy estate and, accordingly, the debtor can be found to lack standing to pursue its further disposition."); Hutchins v. I.R.S., 67 F.3d 40, 43 (3d Cir. 1995) ("[T]he failure to schedule the refund is fatal to [plaintiff's] claim."). However, as the Diamond Z court noted, § 1141(b)-which applies to Chapter 11 debtors, but not Chapter 7 debtors-precludes the same standing analysis for Chapter 11 debtors such as Idearc. Section 1141(b) mandates that "Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor." 11 U.S.C. § 1141(b) (emphasis added). Thus, even if a Chapter 11 debtor fails to schedule a cause of action during bankruptcy proceedings, that cause of action vests in the debtor and the debtor has standing to sue. Diamond Z Trailer Inc., 371 B.R. at 418. The Diamond Z court concluded that [t]he effect of presumptively vesting all of the property of the estate in the chapter 11 . . . debtor upon plan confirmation means that decisions holding that chapter 7 debtors lacks standing to sue on a claim owned by the estate are limited to chapter 7 cases and to those chapter 11 . . . cases in which the plan or the order confirming the plan alters the § 1141(b) . . . vesting rule. When property of the estate has been vested in the debtor, it cannot be said that the chapter 11 debtor has no standing after the case is closed.

Diamond Z Trailer Inc., 371 B.R. at 419.

The Diamond Z analysis is persuasive, and Glassman has not cited to any controlling precedent to the contrary. Accordingly, Glassman's 12(b)(1) motion to dismiss for lack of standing is denied.*fn1

IV.

Glassman frames his judicial estoppel argument as part of his 12(b)(1) motion to dismiss for lack of subject matter jurisdiction. Because judicial estoppel is an affirmative defense that does not attack jurisdiction, his argument is more properly considered under Rule 12(b)(6). See Bethel v. Jendoco Constr. Corp., 570 F.2d 1168, 1174 (3d Cir. 1978) ("[A]n affirmative defense may be raised on a 12(b)(6) motion if the predicate establishing the defense is apparent from the face of the complaint."); Kehr Packages v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. Pa. ...


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