Wagner et al v. Lankford et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: VAUGHAN COMPANY, REALTORS, Case No. 10-10759
Debtor.
JUDITH A. WAGNER, Chapter 11 Trustee
Of the bankruptcy estate of the Vaughan Company,
Realtors,
Plaintiff,
v. Adv. No. 12-1139
DAVID LANKFORD and
LEE ANN LANKFORD,
Defendants.
MEMORANDUM OPINION AND ORDER
THIS MATTER is before the Court on the Motion for Leave to File a Counterclaim
Against the Trustee (the “Motion”) filed by David Lankford and Lee Ann Lankford, pro se. See
Docket No. 75. The Lankfords seek leave to file a counterclaim against Judith Wagner, Chapter
11 Trustee of the bankruptcy estate of the Vaughan Company Realtors, (the “Trustee”) and her
counsel for extortion, incompetence, and fraud. After considering the Motion, the Trustee’s
response, and the supporting papers, and being otherwise sufficiently informed, the Court finds
that the motion should be denied.
BACKGROUND1
Vaughan Company Realtors (“VCR”) filed a voluntary petition under Chapter 11 of the
Bankruptcy Code on February 22, 2010. The Trustee was appointed on April 29, 2010. The
1 The Background section includes facts that are readily apparent from the docket and allegations
contained in the Motion. The Lankfords’ allegations are treated as true for purposes of the instant Motion
only. The Court is making no determination as to the timing and amount of the transfers at issue or
whether the Trustee engaged in any of the alleged misconduct.
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Lankfords allege that on February 10, 2012, the Trustee sent a demand letter threatening to sue
them if they failed to pay $67,313.88 within four days. The Lankfords did not pay any money to
the Trustee, and on February 21, 2012, she commenced the above-captioned adversary
proceeding. In her complaint, the Trustee seeks to recover as a fraudulent transfer allegedly
fictitious returns and profits that were paid to the Lankfords pursuant to a Ponzi scheme.
The Trustee originally asserted that the Lankfords received at least $144,976.56 in
transfers from VCR. The Lankfords allege that certain FBI files which were confiscated from
VCR in connection with Douglas Vaughan’s criminal proceeding contained information that
called into question the accuracy of that figure. In August 2013, the Court directed the Trustee
to explain her calculations to the Lankfords. After reviewing additional information and
financial documents, the Trustee determined that the complaint overstated the amounts paid to
the Lankfords by $4,037.24. The Trustee reduced the amount sought in a subsequent motion for
summary judgment. See Docket No. 56. The Court has not ruled on that motion.
The Lankfords allege that the Trustee and her counsel committed various other errors.
They allege that either she or her counsel: (1) commenced the lawsuit against the Lankfords
without knowing anything about them personally; (2) treated the Lankfords like criminals; (3)
sent a disc containing the Lankfords’ personal financial information to an attorney who did not
represent them;2 (4) made numerous arithmetic errors in calculating the amounts invested and
received; (5) failed to support her motion for summary judgment with a particular discovery
response; (6) attached a ledger relating to another defendant to a motion seeking summary
judgment against the Lankfords; and (7) failed to reduce the amount sought after settling with the
custodian of the Lankford’s individual retirement account (“IRA”).
2 The Lankfords made this allegation in support of their claim for incompetence.
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DISCUSSION
The Lankfords wish to file a counterclaim against the Trustee and her counsel for
extortion, incompetence, and fraud. Parties seeking to sue a bankruptcy trustee for actions taken
in the course of his or her official duties must obtain permission from the bankruptcy court. See
Barton v. Barbour, 104 U.S. 126, 136, 26 L.Ed. 672 (1881); Satterfield v. Malloy, 700 F.3d
1231, 1236 (10th Cir. 2012) (The Barton doctrine “precludes suit against a bankruptcy trustee for
claims based on alleged misconduct in the discharge of a trustee’s official duties absent approval
from the appointing bankruptcy court.”). “Barton applies to claims arising from acts done in the
trustee’s official capacity and within the trustee’s authority as an officer of the court.” Id. at
1234. Bankruptcy trustees are afforded this protection because:
like an equity receiver, a trustee … is working in effect for the court that appointed or
approved him, administering property that has come under the court’s control by virtue of
the Bankruptcy Code. If he [or she] is burdened with having to defend against suits by
litigants disappointed by his [or her] actions on the court’s behalf, his [or her] work for
the court will be impeded.
Id. at 1235 (quoting In re Linton, 136 F.3d 544, 545 (7th Cir.1998)). The protections of the
Barton doctrine extend to the trustee’s counsel “where [counsel] act[s] at the direction of the
trustee and for the purpose of administering the estate or protecting its assets.” In re DeLorean
Motor Co., 991 F.2d 1236, 1241 (6th Cir.1993); Lawrence v. Goldberg, 573 F.3d 1265, 1269-
1270 (11th Cir. 2009) (noting that the Barton doctrine applies to professionals retained by the
trustee).3
“A party seeking leave of court to sue a trustee must make a prima facie case … ,
showing that its claim is not without foundation.” In re VistaCare Group, LLC, 678 F.3d 218,
3 See also Gordon v. Nick, 1998 WL 559734, *2 (4th Cir. 1998) (“The Barton doctrine protects not only
the trustee, but also other court-appointed officers who represent the bankruptcy estate, including the
attorney of the trustee.”); In re Balboa Improvements, Ltd., 99 B.R. 966, 970 (9th Cir. BAP 1989) (Barton
doctrine applies to suits against the trustee's attorneys); Hutchins v. Shatz, Schwartz and Fentin, P.C., 494
B.R. 108, 115-16 (D.Mass.2013) (same).
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232 (3rd Cir. 2012); In re Weitzman, 381 B.R. 874, 880 (Bankr.N.D.Ill. 2008) (noting that under
the Barton doctrine, “the court should not give its permission unless it is convinced that the
movant has a prima facie case against the trustee” or counsel).4 The Lankfords must therefore
make a prima facie showing that the Trustee and her counsel are liable for fraud, extortion, and
incompetence.
A prima facie showing of fraud requires: “(1) a misrepresentation of fact, (2) either
knowledge of the falsity of the representation or recklessness on the part of the party making the
misrepresentation, (3) intent to deceive and to induce reliance on the misrepresentation, and (4)
detrimental reliance on the misrepresentation” Spencer v. Barber, 299 P.3d 388, 402 (N.M.
2013). “[E]xtortion consists of the communication ... of any threat to another ... with intent
thereby to wrongfully obtain anything of value or to wrongfully compel the person threatened.”
Sunwest Bank of Albuquerque, N.A. v. Daskalos, 120 N.M. 637, 638, 904 P.2d 1062, 1063
(Ct.App. 1995) (quoting N.M.S.A. 1978 § 30-16-9). There is no cause of action for
incompetence.
Here, the allegedly offending conduct occurred while the Trustee pursued her fraudulent
transfer action against the Lankfords in an effort to recover funds for the benefit of the
bankruptcy estate. The Trustee was therefore acting in her official capacity and within her
authority as an officer of the court. Further, the actions taken by her counsel (i.e. sending
4 See also In re Spritos, 2006 WL 373014, *6 (9th Cir. 2006) (finding that the bankruptcy court
appropriately denied leave to sue a trustee where the movant failed to allege a prima facie case against the
trustee); In re Summit Metals, Inc., 477 B.R. 484, 497 (Bankr.D.Del. 2012) (“A party seeking leave of the
appointing court to sue a trustee must establish a prima facie case against the trustee on the merits.”); In
re McKenzie, 476 B.R. 515, 530 (E.D.Tenn. 2012) (“Before leave can be granted, the plaintiff must
establish a prima facie case [against the trustee] regarding his claim.”); In re Feeley, 393 B.R. 43, 50
(Bankr.D.Mass. 2008) (same).
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demand letters, composing pleadings, and filing attachments to various motions) were also taken
at the direction of the Trustee and furtherance of the fraudulent transfer litigation. See, e.g.,
McDaniel v. Blust, 668 F.3d 153, 157 (4th Cir.2012) (Barton applied to claims against trustee’s
counsel based on actions taken in the context of attempting to prove avoidance actions).
The Trustee suggests that her liability, and perhaps that of her counsel, is limited and that
the Lankfords must show misfeasance of a more heightened variety such as willful or deliberate
acts. She may very well be correct. However, the Court need not reach that issue because the
allegations here are insufficient to make a prima facie showing under any standard that the
Trustee and her counsel are liable to the Lankfords for fraud or extortion. For example, the
Lankfords have not alleged that they relied on any of the alleged misrepresentations made by the
Trustee or her counsel with respect to their investments in VCR. To the contrary, they have
maintained throughout the case that her calculations were incorrect. The Lankfords have also
failed to allege facts demonstrating that the Trustee or her counsel extorted them. Sending a
demand letter before commencing litigation is fairly common; it is not wrongful, nor does it
constitute a criminal threat. Further, there are no wrongful, threatening communications in the
complaint.
The remaining errors reported by the Lankfords are also insufficient to make a prima
facie showing that the Trustee or her counsel breached any duties or engaged in misconduct.
Aside from several bald allegations that the Trustee “willfully and deliberately manufacture[d]
evidence, lie[d] to the court, … extort[ed] money,” and “violated her fiduciary duties,” most of
the Lankford’s factual allegations appear to focus on the fact that they dispute the amount the
Trustee seeks to recover. For example, they contend that she failed to reduce the amount sought
from them after settling with their IRA custodian and that her counsel failed to support her
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dispositive motions with certain evidence. Such disputes should be resolved in the context of the
pending motions for summary judgment as to the timing and amount of the transfers and if
necessary at trial, not by filing suit against the Trustee and her counsel.
The Court is sympathetic to the Lankfords’ situation. To unwittingly loan money to the
perpetrator of a Ponzi scheme, be sued, and spend significant time dealing with accounting
discrepancies in the fraudulent transfer lawsuit is frustrating and stressful. Nevertheless, the
Lankfords have not made a prima facie showing under any standard the Trustee or her counsel
engaged in fraud, extortion, or otherwise breached a duty to the Lankfords. The Motion will
therefore be denied.
WHEREFORE, IT IS HEREBY ORDERED that the Lankford’s Motion is DENIED.
The Lankfords are not permitted to file a counterclaim for fraud, extortion, or incompetence
against the Trustee or her counsel.
__________________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: February 14, 2014
COPY TO:
James Askew, Edward Mazel, & Daniel White
320 Gold Ave S.W.
Suite 300A
Albuquerque, NM 87102
David Lankford & Lee Ann Lankford
4243 E. Montgomery Rd
Cave Creek, AZ 85331
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