by The Fourth Circuit confirmed the chapter 13 debtor’s standing to pursue a pre-petition cause of action against his former employer. Wilson v. Dollar General Corp., No. 12-1573 (4th Cir. May 17, 2013). Prior to filing for bankruptcy, the debtor filed a claim with the EEOC against his former employer, Dollar General, for employment discrimination in violation of the Americans with Disabilities Act (ADA). After the petition was filed the EEOC issued a right to sue letter and the debtor filed his ADA complaint in the district court. Dollar General moved for summary judgment on the bases that once the debtor filed bankruptcy only the trustee had standing to pursue the pre-petition cause of action, and that the underlying ADA claim lacked merit. The district court found that the debtor had congruent standing with the trustee to pursue the pre-petition claim, but the court granted summary judgment on the merits of the claim.
The Fourth Circuit, joining its five sister circuits that have addressed the issue, agreed that a chapter 13 debtor retains the right to pursue a pre-petition cause of action. See Smith v. Rockett, 522 F.3d 1080, 1082 (10th Cir. 2008); Crosby v. Monroe Cnty., 394 F.3d 1328, 1331 n.2 (11th Cir. 2004); Cable v. Ivy Tech State College, 200 F.3d 467, 472–74 (7th Cir. 1999); Olick v. Parker & Parsley Petroleum Co., 145 F.3d 513, 515–16 (2d Cir. 1998); Mar. Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1209 n.2 (3d Cir. 1992) (Opinion Sur Panel Rehearing), reinstating Mar. Elec. Co. v. United Jersey Bank, 959 F.2d 1194 (3d Cir. 1991).
The court distinguished between chapter 7 where the debtor loses possession of estate property upon the filing of the petition and, therefore, does not have standing to pursue a pre-petition cause of action, and chapter 13 where the debtor retains possession of estate property. In the chapter 13 context, under section 1303, the debtor has, “exclusive of the trustee, the rights and powers of a trustee under sections 363 (b), 363 (d), 363 (e), 363 (f), and 363 (l)” including the power to sue and be sued. That this right includes the ability to pursue pre-petition causes of action is further supported by Bankruptcy Rule 6009 which provides that “the trustee or debtor in possession may prosecute or may enter an appearance and defend any pending action or proceeding by or against the debtor.” The court reasoned that “the Chapter 13 debtor ‘steps into the role of trustee and exercises concurrent authority to sue and be sued on behalf of the estate.’” (citing Cable, 200 F.3d at 473).
Having found that the debtor had the right to pursue the ADA claim in district court, the court went on to agree with the lower court that the claim lacked merit and was properly disposed of in summary judgment.
The language employed by the Fourth Circuit with respect to Rule 6009 is broad and could apply to the more controversial issue of a debtor’s derivative standing to exercise rights such as lien avoidance under section 544. Though that issue has not found its way to the circuit courts, the BAP for the Sixth Circuit has held that a debtor has the power to exercise the trustee’s strong-arm powers under section 542 to seek avoidance under section 544 of an unperfected lien on his home. See U.S. Bank Nat’l Ass’n v. Barbee, No. 10-8074 (B.A.P. 6th Cir. Dec. 12, 2011) (finding that debtor has derivative standing) (following the similar reasoning Countrywide Home Loans v. Dickson, 427 B.R. 399 (B.A.P. 6th Cir.), aff’d on other grounds, 655 F.3d 585 (6th Cir. 2011)); Halm v. Ohio Valley Bank, No. 08-56624 (Bankr. S.D. Ohio March 11, 2013)(applying Barbee and Dickson to issue of extent, validity and/or priority of mortgage lien). The Sixth Circuit Panel relied in large part on practical considerations such as the trustee’s lack of resources to pursue every legitimate avoidance claim, the requirement that the plan conform to section 1325(a)(4), and the possibility of the debtor’s being accused of bad faith if he proposes a plan that does include avoidance of a clearly avoidable lien.
On the other hand, some courts have analogized the chapter 11 case of Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1 (2000) (only the trustee empowered to seek post-petition costs and expenses under section 506(c)) to find that the trustee has exclusive power to seek avoidance of fraudulent conveyance under 544(b). See, e.g., Mitrano v. U.S.A., No. 11- 14531 (Bankr. E.D. Va. Sept. 23, 2011); Robinson v. World Omni Financial Corp. No. 10-1996 (Bankr. E.D. N.C. Feb. 1, 2011).