Gina Lee v. Ray Mariani et al. (2010)

Supplemental and Revised Memorandum of Decision on Motion to Dismiss (No. 110)

This is a civil action seeking damages and injunctive relief based on allegations of breach of contract, unjust enrichment, tortious interference, CUTPA violations, fraud, conversion, and declaratory judgment.   Plaintiff Gina Lee claims that the defendants took nominal ownership and control of plaintiff's ownership and operating interests in the nail salon businesses conducted by two Connecticut corporations known as International Nail & Spa Corp. II and International Nail & Spa Corp. III both having principal places of business in Stamford.   Plaintiff claims that defendants have failed and refused to recognize her 100% beneficial ownership of those corporations and the businesses they conduct and has misappropriated the full ownership of those corporations and the proceeds of the two businesses to themselves.   The defendant Ray Mariani claims that he was the full and rightful legal holder and equitable owner of 90% of the stock in the two corporations, and that the plaintiff, the manager of the businesses, owns the other 10%.   He further claims that he has lawfully transferred his 90% ownership to his wife the defendant Mary Mariani.   Both defendants claim that the plaintiff has mismanaged the businesses and has wrongfully appropriated to herself at least $831,262 of income belonging to the corporations.

Now before the court is defendant Mary Mariani's Motion to Dismiss dated August 30, 2010 claiming that the plaintiff Gina Lee is without standing to maintain this action and the court therefore lacks subject matter jurisdiction.¹  The defendants claim that the trustee in bankruptcy for the plaintiff Gina Lee owns this cause of action and is the only party with standing to maintain this action as plaintiff.  “If a party is found to lack standing, the court is without subject matter jurisdiction to determine the cause.”  Roth v. Weston, 259 Conn. 202, 219 (2002).   The proper vehicle to challenge subject matter jurisdiction is by a motion to dismiss.  Practice Book §§ 10-30, 10-31.

The undisputed facts ² are that the plaintiff on or about May 13, 2010 filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. In Re Gina Lee, Case No. 10-12579(jmp).  As required by the Bankruptcy Rules the plaintiff filed under penalty of false statement schedules of her assets, liabilities and financial affairs.   Nowhere in those schedules does the plaintiff list the instant lawsuit.   More particularly, Schedule B. Question 21 requests disclosure of “other contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to set off claims.”   In response, the plaintiff answered “none.”   On Schedule B at question 35 the plaintiff answered “none” to a request for listing of property of any kind not already listed.   Similarly, Question 4 of the “Statement of Financial Affairs” requests disclosure of “all suits to which the debtor is or was a party within one year immediately preceding the filing of this bankruptcy case.”   The plaintiff in response lists a number of suits (including several other cases in this court and a action against her brought by defendants herein Ray and Mary Mariani in the New York Supreme Court for Westchester County) but fails to list this case which she commenced approximately sixteen months prior to the bankruptcy filing and was pending on May 13, 2010 when the bankruptcy petition was filed.

This suit obviously seeks damages for acts or omissions that allegedly occurred prior to the commencement of this case and prior to bankruptcy filing.   Accordingly, pursuant to § 541(a)(1) of the Bankruptcy Code,³ the cause of action became property of the bankruptcy estate.  United States v. Whiting Pools, 462 U.S. 198, 204-05 (1983);  Moore v. Slonin, 426 F.Sup. 524, 527 (D.Conn.1977) aff'd 562 F.2d 38 (2 Cir.1977);  In Re Carson, 82 B.R. 847, 851 (Bkrcy, S.D.Ohio 1987) (and cases cited therein).

Pursuant to Section 323 of the Bankruptcy Code ⁴ and Bankruptcy Rule 6009, plaintiff's cause of action becomes property of the estate in Bankruptcy, the Trustee and only the Trustee has standing to maintain any such action.   Moore v. Slonin, supra, 426 F.Sup. at 536;  In Re Snyder, 61 B.R. 268, 270 (Bkrcy, S.D.Ohio 1987);  Lawrence v. Jackson Mack Sales, Inc., 837 F.Sup. 771, 778-80 (S.D.Miss 1992), aff'd., 42 F 3d 642 (5th Cir.1994).

The only possible exceptions to this rule are situations where the property is either exempt, or is abandoned by the trustee.   Since the plaintiff has failed to claim the property as exempt property on her bankruptcy schedules, or to list the lawsuit as an asset at all as she was required to do under 11 USC § 521, neither of these exceptions apply.   The court in In re Snyder, supra, expressly considered and rejected a plaintiff/debtor's claim that he had standing to assert an action based upon fraud and misrepresentation.   In that case the court held that where, as in this case, the debtor fails to claim an action as exempt in the bankruptcy filings, he cannot be heard to claim it as exempt in a non-bankruptcy forum.   The court further held that even if the lawsuit were exempt, only the Trustee would have standing to prosecute it.   See, also, Moore v. Slonin, supra at 527, citing First National Bank v. Lasater, 196 U.S. 115, 119 (1905).

Any argument that this suit has been abandoned by the Trustee would also be meritless.   Abandonment is governed by 11 U.S.C. § 554 which provides in subsections (a) and (b) for express abandonment after notice and hearing, which have not occurred in this case.   Subsection (c) provides for abandonment by operation of law when an asset is scheduled pursuant to 11 U.S.C. § 521 and not otherwise administered by the Trustee.   This concept would be factually inapplicable to this matter since the instant suit was not scheduled as required.   Subsection (d) therefore governs in providing that property of the estate which is not abandoned under this section and not otherwise administered remains property of the estate.   Since this lawsuit was not scheduled or administered it could not have been abandoned by the trustee and remains the property of the estate under the administration of the trustee who is the only party having the power to prosecute the action.

The plaintiff is without standing to maintain this action which deprives this court of subject matter jurisdiction over the case.

Order

For the foregoing reasons the motion to dismiss of the defendant Mary Mariani is granted.   The court, sua sponte, also dismisses the claims of the plaintiff against the defendant Ray Mariani.⁵  Judgment of dismissal is therefore entered as to all the claims alleged in the complaint against both defendants.

Alfred J. Jennings, Jr.

Judge Trial Referee

FOOTNOTES

FN1. In the court's original memorandum of decision dated November 4, 2010, this motion was erroneously described as having been filed by both defendants.   Since the motion suggests the lack of subject matter jurisdiction, and the court agreed with that position in the November 4 memorandum of decision, the court now, sua sponte, also finds lack of subject matter jurisdiction over the claims of the plaintiff against the non-moving defendant Ray Mariani as well..  FN1. In the court's original memorandum of decision dated November 4, 2010, this motion was erroneously described as having been filed by both defendants.   Since the motion suggests the lack of subject matter jurisdiction, and the court agreed with that position in the November 4 memorandum of decision, the court now, sua sponte, also finds lack of subject matter jurisdiction over the claims of the plaintiff against the non-moving defendant Ray Mariani as well.

FN2. The plaintiff has submitted no opposition to this motion to dismiss.   The court, as requested by defendants, took the papers at the October 25, 2010 short calendar without appearance or argument by any party..  FN2. The plaintiff has submitted no opposition to this motion to dismiss.   The court, as requested by defendants, took the papers at the October 25, 2010 short calendar without appearance or argument by any party.

FN3. 11 U.S.C. § 541(a)(1), which provides that:  “The commencement of a case under this Section 301, 302, or 303 of this title creates an estate.   Such an estate is comprised of all the following property, wherever located and by whomever held:  (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.”.  FN3. 11 U.S.C. § 541(a)(1), which provides that:  “The commencement of a case under this Section 301, 302, or 303 of this title creates an estate.   Such an estate is comprised of all the following property, wherever located and by whomever held:  (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.”

FN4. 11 U.S.C. § 323, which provides that:  “(a) The trustee in a case under this title is the representative of the estate.(b) The trustee in a case under this title has capacity to sue and be sued.”.  FN4. 11 U.S.C. § 323, which provides that:  “(a) The trustee in a case under this title is the representative of the estate.(b) The trustee in a case under this title has capacity to sue and be sued.”

FN5. “The objection of want of [subject matter] jurisdiction may be made at any time ․ [a]nd the court or tribunal may act on its own motion, and should do so when the lack of jurisdiction is called to its attention.”   (Internal quotation marks omitted.)  Missionary Society of Connecticut v. Board of Pardons & Paroles, 278 Conn. 197, 201 (2006)..  FN5. “The objection of want of [subject matter] jurisdiction may be made at any time ․ [a]nd the court or tribunal may act on its own motion, and should do so when the lack of jurisdiction is called to its attention.”   (Internal quotation marks omitted.)  Missionary Society of Connecticut v. Board of Pardons & Paroles, 278 Conn. 197, 201 (2006).

Jennings, Alfred J., J.T.R.