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Peter Adels v. Charles Bierbach

April 15, 2011

PETER ADELS, PLAINTIFF,
v.
CHARLES BIERBACH, UNITED STATES TRUSTEE, AS TRUSTEE FOR THE BANKRUPTCY ESTATE OF MARIEA DARLENE ELDERS, RAGGED EDGE, INC. AND THE ANGELIC INN, DEFENDANTS, AND FORTNA AUCTIONEERS, DEFENDANT.



The opinion of the court was delivered by: Martin C. Carlson United States Magistrate Judge

(Judge Jones)

(Magistrate Judge Carlson)

MEMORANDUM ORDER

I. INTRODUCTION

Pending before the Court is a discovery dispute between the Plaintiff, Peter Adels, and Charles Bierbach, the Trustee of the Chapter 7 bankruptcy estate of Mariea Darlene Elders ("Trustee"). The dispute arises upon Adels' motion "to determine sufficiency of objections to requests for admission," (Doc. 24), and concerns the Trustee's objections to a set of requests for admission that Adels has propounded upon the debtor, Ms. Elders. The Trustee takes the position that the requests for admission cannot be propounded upon Ms. Elders because she is no longer a party to this litigation, since the Trustee has succeeded to her interests in this action by operation of law. Because Rule 36(a) of the Federal Rules of Civil Procedure only authorizes a party to serve requests for admission upon another party, the Trustee maintains that the requests were improperly addressed to Elders. In response, Adels attempts to argue that Elders is somehow still a party to this litigation, either because the Trustee failed adequately to notify the parties that he was the real party in interest under Rule 17 of the Federal Rules of Civil Procedure, or otherwise that the Trustee failed to substitute himself in accordance with Rule 25 of the Federal Rules of Civil Procedure.

Upon consideration, we agree with the Trustee that he is the real party in interest in this case. It appears that the Trustee became substituted as a matter of law in the debtor's place while this matter remained pending in the Pennsylvania Court of Common Pleas, and he subsequently removed the action, quite properly, to this Court under 28 U.S.C. § 1452. Having removed the case from state court, the Trustee believed he was under no further obligation to seek permission to be substituted as the real party in interest, as he was the party who had caused the action to be removed to federal court in the first place. Neither Peter Adels nor Fortna Auctioneers has ever previously challenged the Trustee's removal of this action to federal court, or objected in any way to the Trustee's active role in this action on behalf of the Elders estate, and the Court therefore never had any reason to believe that the Trustee's substitution was required or necessary. As it stands, we conclude that although it arguably would have been proper for the Trustee to have filed a motion seeking substitution, he has been and remains the real party interest in this action, having succeeded to Elders's interest in this case, and his objections to Adels's requests for admission will be sustained. Nevertheless, we also find that Adels should be given an opportunity to propound the requests for admission upon the Trustee, who will be required to respond to them in accordance with Rule 36.

II. BACKGROUND

The above-captioned action arises out of a failed real estate transaction that predated subsequent bankruptcy proceedings of Mariea Darlene Elders. As part of that transaction, Ms. Elders had engaged Fortna Auctioneers to serve as her agent to auction a parcel of real property located at 1090 Ragged Edge Road, in Fayetteville, Pennsylvania, known as The Angelic Inn, which was operated as a bed and breakfast (the "Inn"). On April 30, 2007, Elders entered into an agreement with Fortna entitled "Real Estate Contract - Absolute," which engaged Fortna as the exclusive auctioneer to sell the Inn at auction. Pursuant to this agreement, Fortna was to receive a 10% "Buyers Premium" on the total purchase price of the Inn, along with certain other expenses incurred. (Doc. 32, Ex. B.) Fortna conducted an auction of the Inn on June 28, 2007. On that date, Peter Adels was the successful bidder on the Inn, and entered into a purchase and sale agreement for the Inn, which provided for an agreed-upon purchase price of $830,000. The "Agreement of Sale" for the Inn required that Adels tender 10% of the purchase price, or $83,000, to Fortna, which amount was to be held in escrow for the benefit of the parties pending a closing on the sale, which was to occur within 60 days from the date of the purchase and sale agreement. (Doc. 32, Ex. C.) Although the parties appear to dispute whether or not they agreed to extend the closing date, and disagree about whether the buyer or seller breached the Agreement of Sale, there is no dispute that the parties never closed on the transaction, and settlement on the sale of the Inn to Adels never occurred.

On January 21, 2008, Fortna filed a lawsuit against Elders in the Count of Common Pleas of Lebanon County, Pennsylvania, alleging breach of contract and seeking payment of its contractual fee as the auctioneer, and for reimbursement of expenses incurred in connection with the sale. (Doc. 1, Exhibits to Notice of Removal.) That lawsuit was subsequently transferred to the Court of Common Pleas for Franklin County. On March 14, 2008, Adels filed a praecipe for lis pendens against Elders and the Inn in Franklin County. Thereafter, on July 3, 2008, Adels filed his own action against Elders and Fortna in the Franklin County Court of Common Pleas, alleging breach of contract, and seeking return of the $83,000 held in escrow as part of the failed transaction.

On September 24, 2008, while proceedings were underway to consolidate the respective cases brought in Franklin County by Fortna and Adels, Mariea Darlene Elders filed a petition for relief under Chapter 13 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Pennsylvania. (M.D. Bankr. No. 1:08-bk-3453-MDF.) Adels and Fortna subsequently sought relief from the automatic stay, and on March 9, 2009, the Bankruptcy Court granted relief from the stay, thereby allowing Adels and Fortna to prosecute their litigation against Elders in the Franklin County Court of Common Pleas. (Bankr. Doc. 48.) Thereafter, on June 8, 2009, Ms. Elder's bankruptcy was converted to a liquidation proceeding under Chapter 7 of the Bankruptcy Code. Adels submitted a proof of claim in Elders's bankruptcy proceeding, seeking a return of the $83,000 currently held by Fortna in escrow. Additionally, Fortna claims to be a secured creditor of Elders, or to otherwise have an administrative priority claim in those proceedings stemming from a claim for payment of 10% of the auction price, plus reimbursement of more than $36,000 in advertising expenses paid as part of the auction.

The principal issue in this litigation between Adels and the Trustee is whether the $83,000 that Adels tendered to Fortna as part of the sales agreement constitutes property of the Elders estate that is being administered as part of the bankruptcy proceedings. Charles Bierbach, Trustee for the Chapter 7 bankruptcy estate, claims that the $83,000 was a payment to the debtor on the sale of the Inn. On the basis of this contention, the Trustee argues that the $83,000 is property of the debtor's estate, and the Trustee seeks in this action to require Fortna to relinquish the funds to the estate. Adels, in contrast, contends that the funds are not property of the estate, but have been properly held by Fortna in escrow as part of the failed real estate transaction regarding the sale of the Inn. Adels commenced the instant proceedings in state court to have the escrowed monies returned to him. Adels argues that under Pennsylvania law, and under the terms of the Agreement of Sale, the $83,000 was held in escrow for the benefit of the parties, was therefore never "made" to Elders, and therefore never became part of the debtor's estate. Accordingly, Adels seeks a Court order requiring Fortna to return the escrowed monies to him. For its part, Fortna seeks $119,310.11, comprised of the 10% commission claimed under the Real Estate Contract - Absolute, as well as $36,310.11 for costs it incurred in connection with the auction of the Inn.

On December 2, 2009, the Trustee removed the state court action to this Court pursuant to 28 U.S.C. § 1452, on the asserted basis that the causes of action at issue either arise under Title 11 of the United States Code, or are otherwise related to cases under Title 11 of the United States Code. (Doc. 1.) On December 3, 2009, the Trustee filed answers to Adels' and Fortna's complaint (Docs. 2, 3), and asserted counter- and cross-claims against both Adels and Fortna based, inter alia, on the Trustee's allegations that the $83,000 was property of the estate. (Id.) On December 21, 2009, Adels filed an answer to the Trustee's counterclaims and crossclaims that were filed in response to Fortna's complaint, which had originally been brought in the Lebanon County Court of Common Pleas. (Doc. 6.) On December 24, 2009, Fortna filed a "reply" to the Trustee's counterclaims and crossclaims. (Doc. 7.)*fn1

After removing this action to this Court, the Trustee never moved to be substituted in Elders' place as a Defendant in this case, by virtue of his lawful role as the appointed administrator of the bankruptcy estate pursuing the escrowed funds that he claimed to be estate property. It appears that the Trustee never took any steps to substitute himself as the real party interest while the case against Elders was pending in the Court of Common Pleas, but instead believed that he "accomplished the removal and substitution simultaneously" by including a statement within the notice of removal as to why he, and not Elders, was the removing party. (Doc. 33, at 9.) At the same time, neither Adels nor Fortna ever objected to the Trustee litigating this action on behalf of the debtor's estate, or to the Trustee's removal of the action to federal court.

Notwithstanding the Trustee's failure to file any document to evidence his substitution as the real party in interest, the parties submitted a joint case management plan in which the Trustee clearly explained the basis for his substitution in the case, observing that "Charles Bierbach, as the assigned Chapter 7 Trustee now pursues Elders' claim as a potential asset of the bankruptcy estate." (Doc. 10, at 4.) Additionally, it appears that in their joint case management plan, the parties agreed that "[t]he Trustee has standing to act as a party in this matter." (Id., at 5.) In the case management plan, the parties also indicated their agreement that "[a]ll parties will serve interrogatories, document requests ...


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