Borlo v. Navy Fed. Credit Union.

458 B.R. 228

Peter A. BORLO

v.NAVY FEDERAL CREDIT UNION.

Civil Action No. DKC 11–1168.

United States District Court, D. Maryland.

Sept. 2, 2011.

Douglas R. Taylor, Law Office of Douglas R. Taylor, Kensington, MD, for Peter A. Borlo.Amy S. Owen, Elizabeth S. Finberg, Cochran and Owen LLC, Vienna, VA, for Navy Federal Credit Union.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for review in this diversity action is a motion to dismiss filed by Defendant Navy Federal Credit Union (“Navy Federal”). (ECF No. 16). The issues have been fully briefed, and the court now rules, no hearing deemed necessary. Local Rule 105.6. For the following reasons, the motion to dismiss will be granted.

I. Background

Plaintiff alleges the following facts either in his complaint or his motion papers. Plaintiff Peter A. Borlo is a resident of Maryland. In October 2005, Borlo was hired by a company called The Manhattan Group, Inc., which was owned by Darryl S. Paxton.¹ At some point before November 2006, Borlo and Paxton entered into a separate business venture together. They formed a limited liability company called 12th Street Venture to acquire certain real property, refurbish and renovate it, and sell it for a profit. Paxton persuaded Borlo to take out a loan solely in Borlo's name to carry out their business plan.² After purchasing the property, however, Paxton did not carry out any of their refurbishment or renovation plans. Without improvements, the property never sold, and Borlo was eventually unable to continue making payments on the loan.

In January 2008, Borlo filed for bankruptcy under Chapter 11.³ To prepare his bankruptcy petition, Borlo performed a credit check to identify creditors. As a result of this credit check, Borlo learned that in November 2006, Paxton had taken out a $30,000.00 installment loan (“the installment loan”) using Borlo's name from Navy Federal, though Borlo never authorized such a transaction. Paxton knew the details of Borlo's identity based on their work together at 12th Street Venture. No payments were ever made on the installment loan.

On March 26, 2009, the bankruptcy court entered an order of discharge. On October 27, 2009, Navy Federal sent a letter to Borlo threatening to sue if he did not pay back the installment loan.

On January 7, 2011, Borlo filed a complaint against Navy Federal in the Circuit Court for Montgomery County, Maryland. After service, Navy Federal timely removed to this court on the basis of diversity of citizenship. (ECF No. 1). The complaint contains two counts: one for negligence and one for damage to credit and credit standing. (ECF No. 2).

On May 11, 2011, Navy Federal filed the pending motion to dismiss. (ECF No. 16). Borlo filed opposition papers on May 31, 2011. (ECF No. 17). Navy Federal replied on June 14, 2011. (ECF No. 18).

II. Standard of Review

Navy Federal moves to dismiss Borlo's complaint pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject-matter jurisdiction due to lack of standing and pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim. Because jurisdiction is a prerequisite to any court ruling on the merits, Navy Federal's arguments pursuant to Rule 12(b)(1) will be considered first.

To begin, it is not precisely correct to refer to the two doctrines of standing and subject-matter jurisdiction interchangeably for purposes of a motion to dismiss, although they are related. See Miller v. Pac. Shore Funding, 224 F.Supp.2d 977, 994 (D.Md.2002) (“Standing ... is a fundamental component of a court's subject-matter jurisdiction.”); see also 13B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 3531.15 (3d ed. 2008) (“Article III standing is treated as an issue of subject-matter jurisdiction.”). “In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues. This inquiry involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). In contrast, “[s]ubject matter jurisdiction defines the court's authority to hear a given type of case; it represents the extent to which a court can rule on the conduct of persons or the status of things.” Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S. 635, 129 S.Ct. 1862, 1866, 173 L.Ed.2d 843 (2009) (internal quotation marks and citations omitted). “The basic statutory grants of federal-court subject-matter jurisdiction are contained in 28 U.S.C. §§ 1331 and 1332. Section 1331 provides for ‘[f]ederal-question’ jurisdiction, § 1332 for ‘[d]iversity of citizenship’ jurisdiction.” Arbaugh v. Y & H Corp., 546 U.S. 500, 513, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006).

Despite these distinctions, courts generally analyze issues of standing pursuant to Rule 12(b)(1). See Taubman Realty Grp. Ltd. P'ship v. Mineta, 320 F.3d 475, 480 (4th Cir.2003) (affirming district court's dismissal of complaint for lack of standing pursuant to Rule 12(b)(1)); Thompson v. Cnty. of Franklin, 15 F.3d 245, 247–48 (2d Cir.1994) (holding that Rule 12(b)(1) is the appropriate method by which to analyze standing issue); Equal Rights Ctr. v. Abercrombie & Fitch Co., 767 F.Supp.2d 510, 514–15 (D.Md.2011) (analyzing standing issue under Rule 12(b)(1)). According to the Second Circuit, because the standing “inquiry involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise,” it should be analyzed under Rule 12(b)(1). See Thompson, 15 F.3d at 247–48. Consequently, Navy Federal's argument that Borlo lacks standing to bring this action is best analyzed under Rule 12(b)(1). The Rule 12(b)(1) motion should be granted “only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir.1991).

III. Analysis

Navy Federal argues that Borlo lacks standing because all of Borlo's legal and equitable interests at the time of filing his bankruptcy, including the claims asserted here, became the property of the bankruptcy estate, and Borlo's right to pursue those claims extinguished once a trustee was appointed. (ECF No. 16, at 4–6). In response, Borlo appears to concede that if a debtor knows a cause of action exists when filing his bankruptcy petition, then that claim cannot later be pursued by the debtor. ( See ECF No. 17, at 3–4 (“Certainly, a cause of action which a debtor knows exists prior to the filing of his bankruptcy petition is properly an issue to be determined by the bankruptcy court.”)). He argues, however, that he did not learn that his identity had been stolen to obtain the fraudulent installment loan until after his bankruptcy was completed. ( Id. at 3). In addition, he contends that Navy Federal did not pursue repayment of the installment loan until October 2009, so Navy Federal did not consider the installment loan an asset of the bankruptcy estate. ( Id.).

The Bankruptcy Code defines property of a debtor's estate as including “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a) (1); Detrick v. Panalpina, Inc., 108 F.3d 529, 535 (4th Cir.1997). Once the case is filed, “the debtor's interests in property vest in the bankruptcy estate, and the debtor surrenders the right to dispose of or otherwise control the estate property. The bankruptcy trustee, as representative of the estate, has exclusive authority to use, sell, or lease estate property.” Miller v. Pac. Shore Funding, 287 B.R. 47, 49–50 (D.Md.2002) (internal quotation marks and citations omitted), aff'd, 92 Fed.Appx. 933 (4th Cir.2004). Accordingly, “the trustee alone has standing to raise issues before the bankruptcy court and to prosecute appeals. A trustee is the representative of the bankrupt's estate and has the capacity to sue or be sued.” Richman v. First Woman's Bank (In re Richman), 104 F.3d 654, 657 (4th Cir.1997).

“Property of the estate includes all of the debtor's interests in any cause of action that has accrued prior to the bankruptcy petition.” Miller, 287 B.R. at 50; see also Goodman v. Phillip R. Curtis Enters., Inc., 809 F.2d 228, 232 n. 6 (4th Cir.1987). “To determine when a cause of action accrues, and therefore whether it accrued pre-bankruptcy and is an estate asset, the Court looks to state law.” Boland v. Crum (In re Brown ), 363 B.R. 591, 605 (Bankr.D.Mont.2007); see also Cusano v. Klein, 264 F.3d 936, 947 (9th Cir.2001).⁴ When undertaking this analysis, it is important to distinguish between “accrual of an action for purposes of ownership in a bankruptcy proceeding and accrual for purposes of the statute of limitations.” Brown, 363 B.R. at 605; see also Cusano, 264 F.3d at 947. While these two inquiries are different,

it is often necessary to look to state law on the statute of limitations to determine when a cause of action accrues because accrual rarely is discussed apart from the issue of the running of the statute of limitations. When this is the case, the court must be careful to extract accrual principles only, and not principles of discovery and tolling.State Farm Life Ins. Co. v. Swift (In re Swift), 129 F.3d 792, 796 n. 18 (5th Cir.1997).⁵ In Maryland, “a cause of action accrues when: (1) the legally operative facts permitting the filing of a claim come into existence; and (2) the claimants have notice of the nature and cause of their injury.” Miller, 287 B.R. at 50 (collecting cases).⁶

As with all other estate property, “[i]f a cause of action is part of the estate of the bankrupt then the trustee alone has standing to bring that claim.” Nat'l Am. Ins. Co. v. Ruppert Landscaping Co., 187 F.3d 439, 441 (4th Cir.1999); Capital Source Fin., LLC v. Delco Oil, Inc., 625 F.Supp.2d 304, 310 (D.Md.2007...