Beck & Beck, LLC v. Costello

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BECK AND BECK, LLC v. JAMES T. COSTELLO
(AC 39034)
DiPentima, C. J., and Elgo and Harper, Js.
Syllabus
The plaintiff law firm sought to recover damages from the defendant for
unpaid legal fees for services it had rendered in connection with its
representation of the defendant in a receivership action. After the plain-
tiff’s principal, B, was cited into the action as a counterclaim defendant,
the trial court granted the plaintiff’s motion to strike the amended coun-
terclaims and cross claims that the defendant had filed and rendered
judgment in favor of the plaintiff on the amended counterclaims and
cross claims, from which the defendant appealed to this court. During
the pendency of that appeal, the trial on the plaintiff’s other claims
proceeded, and the defendant filed a bankruptcy petition in which he
failed to list the amended counterclaims and cross claims as an item
of his personal property. The bankruptcy trustee thereafter determined
that there was no property available for distribution from the estate
and closed the bankruptcy case. Subsequently, this court reversed the
judgment of the trial court granting the motion to strike the counter-
claims and cross claims and remanded the case for further proceedings.
On remand, the trial court granted the plaintiff’s motion to dismiss the
defendant’s amended counterclaims and cross claims, determining that
the defendant did not have standing to bring those claims because the
bankruptcy trustee had not abandoned them. On appeal to this court,
the defendant claimed that the trial court erroneously dismissed his
counterclaims and cross claims for lack of standing after finding that
those claims belonged to the bankruptcy estate. Held that the trial court
correctly determined that the defendant lacked standing to bring the
amended counterclaims and cross claims against the plaintiff and B;
upon the filing of a bankruptcy petition, all prepetition causes of action
become the property of the bankruptcy estate and must be properly
scheduled in the bankruptcy petition in order to revest in the debtor
through abandonment, and because the defendant did not properly list
on his schedule of personal property in the bankruptcy proceeding the
amended counterclaims and cross claims, which existed prior to the
date on which the defendant filed the bankruptcy petition, the bank-
ruptcy estate owned the amended counterclaims and cross claims and
they were not abandoned by the bankruptcy trustee, who was not aware
of them when she closed the defendant’s bankruptcy case, and, there-
fore, the defendant lacked the requisite standing to bring the amended
counterclaims and cross claims.
Argued September 25—officially released November 21, 2017
Procedural History
Action to recover unpaid legal fees, brought to the
Superior Court in the judicial district of Fairfield, small
claims session, where the defendant filed a counter-
claim; thereafter, the matter was transferred to the regu-
lar civil docket, where the court, Radcliffe, J., granted
the defendant’s motion to cite in Kenneth A. Beck as
a counterclaim defendant; subsequently, the defendant
filed an amended counterclaim and a cross claim; there-
after, the court, Sommer, J., granted the plaintiff’s
motion to strike the amended counterclaim and cross
claim; subsequently, the court, Sommer, J., granted the
defendant’s motion for judgment on the stricken,
amended counterclaim and cross claim and rendered
judgment thereon, from which the defendant appealed
to this court, which reversed the judgment and
remanded the case for further proceedings; thereafter,
the court, Arnold, J., granted the plaintiff’s motion to
dismiss the amended counterclaim and cross claim, and
the defendant appealed to this court. Affirmed.
James T. Costello, self-represented, the appellant
(defendant).
Kenneth A. Beck, for the appellees (plaintiff and coun-
terclaim defendant).
Opinion
PER CURIAM. The defendant, James T. Costello,
appeals from the trial court’s dismissal of his amended
counterclaims and cross claims against the plaintiff,
Beck & Beck, LLC, and the counterclaim defendant,
Kenneth A. Beck. On appeal, the defendant argues that
the court erroneously dismissed his counterclaims and
cross claims for lack of standing after finding that the
claims belonged to his bankruptcy estate and not to
him. We disagree, and accordingly, affirm the judgment
of the trial court.
The following facts and procedural history are taken
from our opinion in a prior appeal in this case.1 ‘‘On
August 30, 2011, the plaintiff filed this action in small
claims court against the defendant seeking to recover
unpaid legal fees for its prior representation of the
defendant in a receivership action against the defen-
dant’s condominium association. The defendant . . .
filed an answer, a special defense, and a four count
counterclaim alleging breach of contract, breach of the
implied covenant of good faith and fair dealing, profes-
sional malpractice, and violation of the Connecticut
Unfair Trade Practices Act, General Statutes § 42-110a
et seq. After the case was transferred [to the regular
docket], the plaintiff filed a motion to strike the defen-
dant’s entire counterclaim on the ground that the defen-
dant’s claims were legally insufficient because he [could
not] possibly establish proximate cause or damages
. . . . The trial court, Levin, J., granted the plaintiff’s
motion to strike.
‘‘The defendant thereafter moved to cite in the plain-
tiff’s principal, Attorney Kenneth A. Beck, individually,
as a counterclaim defendant. After the court granted
the defendant’s motion to cite in Beck, the defendant
filed an amended answer, a special defense, and coun-
terclaim against the plaintiff, and a parallel cross claim
against Attorney Beck. The amended counterclaim and
parallel cross claim pleaded claims that were essentially
identical to those pleaded in the defendant’s stricken
counterclaim. The plaintiff thereafter moved to strike
the defendant’s amended counterclaim on two grounds:
first, that the defendant could not prevail on any claim
set forth in his counterclaim because he could not prove
the causation or damages elements of any such claim;
and second, that [t]he counterclaims and cross claims
mirror the previously stricken counterclaims.
‘‘The court, Sommer, J., granted the plaintiff’s motion
to strike. . . . The court determined that the defendant
had failed to submit a justiciable claim to the court,
thus depriving the court of jurisdiction, that is, the
authority to decide those claims on their merits,
because it lacks jurisdiction as a matter of law. The
court rendered judgment on the counterclaim and cross
claim on October 7, 2013 . . . .’’ (Footnote omitted;
internal quotation marks omitted.) Beck & Beck, LLC
v. Costello, 159 Conn. App. 203, 205–206, 122 A.3d 269(2015). The defendant appealed from the trial court’s
judgment granting the plaintiff’s motion to strike.
While the defendant’s first appeal was pending, the
trial on the plaintiff’s claims proceeded. Following the
trial, the plaintiff was awarded $750 in unpaid legal
fees, plus costs. During the pendency of the defendant’s
first appeal, and after trial on the plaintiff’s claims, the
defendant filed a chapter 7 bankruptcy petition in the
United States Bankruptcy Court for the District of Con-
necticut. The defendant completed a chapter 7 volun-
tary petition, on which he listed certain financial
information, including the $750 judgment owed to the
plaintiff as an unsecured nonpriority claim. He also
noted the underlying action under the section titled
‘‘Suits and administrative proceedings, executions, gar-
nishments and attachments.’’ On the defendant’s sched-
ule B—personal property form, however, the defendant
checked ‘‘[n]one’’ where the form asks for a description
of ‘‘[o]ther contingent and unliquidated claims of every
nature, including . . . counterclaims of the debtor
. . . .’’ On September 17, 2014, the bankruptcy trustee
issued a report (report of no distribution) determining
that ‘‘[t]here is no property available for distribution
from the estate.’’ The defendant’s bankruptcy case was
closed on November 13, 2014.
Prior to oral argument in the first appeal, the plaintiff
filed a motion to dismiss the appeal, arguing that
because the Bankruptcy Court had not made a judicial
determination that the defendant’s counterclaims and
cross claims were abandoned, the defendant was not
the real party in interest as the claims still belonged to
the bankruptcy estate. At oral argument before this
court in 2015, we noted that the issue of whether the
defendant had standing was one for the trial court to
address on a motion to dismiss and, therefore, we
allowed the appeal to proceed. This court reversed the
trial court’s order granting the plaintiff’s motion to
strike the defendant’s amended counterclaims and
cross claims, and remanded the defendant’s claims to
the trial court for further proceedings. See Beck & Beck,
LLC v. Costello, supra, 159 Conn. App. 208–209.
Prior to a trial on the defendant’s amended counter-
claims and cross claims, the plaintiff filed a motion
to dismiss on the grounds that the defendant lacked
standing and that the court lacked subject matter juris-
diction because there was no actual controversy
between the plaintiff and the defendant. On February
26, 2016, the court, Arnold, J., granted the plaintiff’s
motion to dismiss the defendant’s amended counter-
claims and cross claims, determining that the defendant
did not have standing because the bankruptcy trustee
had not abandoned those claims.2 This appeal followed.
We first set forth the applicable standard of review.
‘‘A determination regarding a trial court’s subject matter
jurisdiction is a question of law. When . . . the trial
court draws conclusions of law, our review is plenary
and we must decide whether its conclusions are legally
and logically correct and find support in the facts that
appear in the record.’’ (Internal quotation marks omit-
ted.) Fairfield Merrittview Ltd. Partnership v. Nor-
walk, 320 Conn. 535, 548, 133 A.3d 140 (2016). ‘‘When
a . . . court decides a jurisdictional question raised
by a pretrial motion to dismiss, it must consider the
allegations of the complaint in their most favorable
light. . . . In this regard, a court must take the facts
to be those alleged in the complaint, including those
facts necessarily implied from the allegations, constru-
ing them in a manner most favorable to the pleader.
. . . The motion to dismiss . . . admits all facts which
are well pleaded, invokes the existing record and must
be decided upon that alone. . . . In undertaking this
review, we are mindful of the well established notion
that, in determining whether a court has subject matter
jurisdiction, every presumption favoring jurisdiction
should be indulged.’’ (Internal quotation marks omit-
ted.) Dorry v. Garden, 313 Conn. 516, 521, 98 A.3d
55 (2014).
The defendant maintains that the bankruptcy trustee
abandoned the amended counterclaims and cross
claims when she submitted the report of no distribution
and closed the defendant’s bankruptcy case. The plain-
tiff responds that because the defendant did not list
the amended counterclaims and cross claims on his
bankruptcy petition, the trustee never abandoned those
claims and, therefore, the court was correct in dismiss-
ing the defendant’s amended counterclaims and cross
claims for lack of standing. We agree with the plaintiff.
‘‘The act of filing a bankruptcy petition transfers a
debtor’s assets to the bankruptcy estate, and these
assets remain assets of the bankruptcy estate unless
returned to the debtor by the operation of law. . . .
[I]t is a basic tenet of bankruptcy law . . . that all
assets of the debtor, including all pre-petition causes
of action belonging to the debtor, are assets of the
bankruptcy estate that must be scheduled for the bene-
fit of creditors . . . .’’ (Citations omitted; internal quo-
tation marks omitted.) Crawford v. Franklin Credit
Management Corp., 758 F.3d 473, 483 (2d Cir. 2014).
‘‘[A]n asset must be properly scheduled in order to pass
to the debtor through abandonment under 11 U.S.C.
§ 554 (c).’’ In re Suplinskas, 252 B.R. 293, 295 (Bankr.
D. Conn. 2000).
‘‘[W]here a debtor fails to list a claim as an asset
on a bankruptcy petition, the debtor is without legal
capacity to pursue the claim on his or her own behalf
post-discharge. . . . This is so regardless of whether
the failure to schedule causes of action is innocent.’’
(Citations omitted.) In re Costello, 255 B.R. 110, 113
(Bankr. E.D.N.Y. 2000); see also Rosenshein v. Kleban,
918 F. Supp. 98, 103 (S.D.N.Y. 1996) (‘‘[c]ourts have
held that because an unscheduled claim remains the
property of the bankruptcy estate, the debtor lacks
standing to pursue the claims after emerging from bank-
ruptcy, and the claims must be dismissed’’).
‘‘If a party is found to lack standing, the court is
without subject matter jurisdiction to determine the
cause. . . . [A] court lacks discretion to consider the
merits of a case over which it is without jurisdiction.
. . . Standing is not a technical rule intended to keep
aggrieved parties out of court; nor is it a test of substan-
tive rights. Rather it is a practical concept designed to
ensure that courts and parties are not vexed by suits
brought to vindicate nonjusticiable interests and that
judicial decisions which may affect the rights of others
are forged in hot controversy, with each view fairly
and vigorously represented.’’ (Citation omitted; internal
quotation marks omitted.) Fairfield Merrittview Ltd.
Partnership v. Norwalk, supra, 320 Conn. 548.
Even indulging every presumption in favor of jurisdic-
tion, we cannot conclude that the defendant has stand-
ing to pursue his amended counterclaims and cross
claims. The case law makes it clear that upon the filing
of a bankruptcy petition, all prepetition causes of action
become the property of the bankruptcy estate; see
Crawford v. Franklin Credit Management Corp., supra,
758 F.3d 483; and that in order to revest in the debtor
through abandonment, the assets must be properly
scheduled. See In re Suplinskas, supra, 252 B.R. 295.
A review of the defendant’s schedule B—personal prop-
erty form shows that when asked to list ‘‘[o]ther contin-
gent and unliquidated claims of every nature, including
. . . counterclaims of the debtor,’’ the defendant
checked ‘‘[n]one.’’ Although the defendant noted the
underlying action and the $750 judgment that the plain-
tiff had against him, the bankruptcy trustee was not
made aware of the counterclaims and cross claims that
the defendant had pending against the plaintiff. There-
fore—even if omission of the counterclaims and cross
claims was innocent—the trustee did not abandon the
counterclaims and cross claims when she issued the
report of no distribution and closed the defendant’s
bankruptcy case in 2014.
The amended counterclaims and cross claims existed
prior to the date on which the defendant filed his bank-
ruptcy petition, and litigation surrounding those claims
was ongoing. Because the defendant failed to include
the counterclaims and cross claims on his schedule B—
personal property form, we conclude that the bank-
ruptcy estate owns the defendant’s amended counter-
claims and cross claims. See, e.g., Omotosho v. Freeman
Investment & Loan, 136 F. Supp. 3d 235, 244–45 (D.
Conn. 2016) (‘‘The plaintiff had sufficient knowledge of
facts related to initiation of the [cause of action] at the
time he filed for bankruptcy. [Therefore] [b]ecause the
plaintiff failed to include this claim on his Schedule B,
it is owned by the bankruptcy estate.’’). Accordingly,
the court correctly determined that the defendant lacks
the requisite standing to bring the amended counter-
claims and cross claims against the plaintiff and coun-
terclaim defendant.
The judgment is affirmed.
1
See Beck & Beck, LLC v. Costello, 159 Conn. App. 203, 122 A.3d 269 (2015).
2
Because the court determined that the defendant lacked standing to
bring his amended counterclaims and cross claims, it did not reach the
merits of the plaintiff’s argument that no actual controversy existed between
the plaintiff and the defendant.