United States District Court, D. Oregon
EVERGREEN INTERNATIONAL AIRLINES, INC., and EVERGREEN INTERNATIONAL AVIATION, INC., Plaintiffs,
ANCHORAGE ADVISORS, LLC, ANCHORAGE CAPITAL GROUP, LLC, and NEXGEN AVIATION CAPITAL, LLC, Defendants.
OPINION AND ORDER
PAUL PAPAK, Magistrate Judge.
Plaintiffs Evergreen International Airlines, Inc., and Evergreen International Aviation, Inc. (collectively, "Evergreen"), filed this action against defendants Anchorage Advisors, LLC, Anchorage Capital Group, LLC, and Nexgen Aviation Capital, LLC, on November 22, 2011. Evergreen amended its complaint effective August 1, 2013, By and through its amended complaint, Evergreen alleges defendants' liability for: (i) intentional interference with business relations, (ii) breach of fiduciary duty, and (iii) civil conspiracy. This court has subject-matter jurisdiction over Evergreen's claims based on the complete diversity of the parties and the amount in controversy.
Now before the court are Evergreen's motion (#196) to substitute the trustee of Evergreen's Chapter 7 bankruptcy estate into this action as the plaintiff in Evergreen's stead and defendants' motion (#158) to dismiss Evergreen's claims for failure to join the real part in interest. I have considered the motions, oral argument on behalf of the parties, and all of the pleadings and papers on file. For the reasons set forth below, Evergreen's motion (#196) to substitute the real party in interest is granted, and defendants' motion (#158) to dismiss is denied as moot.
Federal Civil Procedure Rule 17(a)(1) provides that lain action must be prosecuted in the name of the real party in interest." Fed.R.Civ.P. 17(a)(1). A "real party in interest" is "any party to whom the relevant substantive law grants a cause of action." U-Haul International, Inc. v. Jartran, Inc., 793 F.2d 1034, 1038 (9th Cir. 1986). It is well established that a debtor in Chapter 7 bankruptcy is not a real party in interest to prosecute claims accrued on behalf of the bankruptcy estate, and that only the bankruptcy trustee can be the real party in interest absent abandonment of the claims by the trustee to the debtor. See Estate of Spirtos v. One San Bernardino County Superior Court Case Numbered SPR 02211, 443 F.3d 1172, 1176 (9th Cir. 2006); see also 11 U.S.C. § 554(d).
Notwithstanding the foregoing, Federal Civil Procedure Rule 17(a)(3) cautions that "[t]he court may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action." Fed.R.Civ.P. 17(a)(3). "After ratification, joinder, or substitution, the action proceeds as if it had been originally commenced by the real party in interest." Id.
I. Motion (#158) to Dismiss for Failure to Join the Real Party in Interest
By and through their motion (#158) to dismiss, defendants challenge Evergreen's right under Federal Civil Procedure Rule 17(a) to prosecute its claims before this court in its own name, on the grounds that following its chapter 7 bankruptcy, Evergreen is no longer the real party in interest with respect to those claims. Neither set of parties expressly indicates the procedural mechanism by and through which defendants seek dismissal of Evergreen's claims based on a Rule 17(a) challenge, the federal rules do not specify any such procedure, and the Ninth Circuit does not appear ever to have spoken directly on this issue. Because failure to prosecute an action in the name of the real party in interest raises a problem of prudential standing, see In re Veal, 450 B.R. 897, 907 (B.A.P. 9th Cir. 2011), and because standing is a necessary prerequisite for the proper exercise of federal subject-matter jurisdiction, see Chapman v. Pier 1 Imps. (U.S.), Inc., 631 F.3d 939, 960 (9th Cir. 2011), it appears appropriate to consider defendants' Rule 17(a) challenge under Federal Civil Procedure Rule 12(b)(1). See, e.g., Neighbors v. Mortg. Elec. Registration Sys., Case no. 08-5530-PJH, 2009 U.S. Dist. LEXIS 5302, *4-5 (N.D. Cal. Jan. 27, 2009) (making a similar determination); see also Allstate Ins. Co. v. Hughes, 358 F.3d 1089, 1093-1095 (9th Cir. 2004) (indicating that the federal courts lack subject-matter jurisdiction to consider the merits of a claim brought by any party other than the real party in interest).
The federal courts are courts of limited jurisdiction. See, e.g., Exxon Mobil Corp. v. Allapattah Servs., 545 U.S. 546, 552 (2005), citing Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994). As such, the courts presume that causes of action "lie outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction." Kokkonen, 511 U.S. at 377; see also, e.g., Vacek v. United States Postal Serv., 447 F.3d 1248, 1250 (9th Cir. 2006).
A motion under Federal Civil Procedure Rule 12(b)(1) to dismiss for lack of subject-matter jurisdiction may be either "facial" or "factual." See Safe Air v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004), citing White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). In a facial attack on subject-matter jurisdiction, the moving party asserts that a plaintiff's allegations are insufficient on their face to invoke federal jurisdiction, whereas in a factual attack, the moving party disputes the factual allegations that, if true, would give rise to subject-matter jurisdiction. Where a defendant raises a facial challenge to subject-matter jurisdiction, the factual allegations of the complaint are presumed to be true, and the motion may be granted only if the plaintiff fails to allege an element necessary for subject matter jurisdiction. See Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.1 (9th Cir. 2003). By contrast, where a defendant raises a factual challenge to federal jurisdiction, "the district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment, " Safe Air v. Meyer, 373 F.3d at 1039, citing Savage, 343 F.3d at 1039 n.2, and "need not presume the truthfulness of the plaintiff's allegations, " id., citing White, 227 F.3d at 1242. The challenge at issue here is a factual challenge to the court's jurisdiction.
II. Motion (#196) to Substitute the Trustee of Evergreen's Bankruptcy Estate as the Real Party in Interest
By and through its motion (#196) to substitute the trustee of its Chapter 7 bankruptcy estate as the real party in interest, Evergreen seeks substitution of Alfred T. Giuliano, the trustee of its bankruptcy estate, into this action as the plaintiff in lieu of Evergreen. Evergreen argues that its motion is governed by Federal Civil Procedure Rule 25(c), which provides a mechanism for joinder of a party to whom an interest has been transferred. See Fed.R.Civ.P. 25(c). As noted above, where the real party in interest is substituted in by court order, "the action proceeds as if it had been originally commenced by the real party in interest." Fed.R.Civ.P. 17(a)(3).
On December 31, 2013 - during the pendency of this action and after defendants' currently pending motion (#120) for summary judgment and Evergreen's currently pending motion (#123) for partial summary judgment were filed - both Evergreen International Airlines, Inc., and Evergreen International Aviation, Inc., filed voluntary petitions for Chapter 7 bankruptcy relief in the United States Bankruptcy Court for the District of Delaware (the ...