Fifth Court: Twenty-plus Years of Precedent on Trustee in Bankruptcy’s “Exclusive Position” Implicitly Overturned by SCOTX | Carrington Coleman

Moser v. Dillon Investments, LLC

Dallas Court of Appeals, No. 05-21-00204-CV (August 2, 2022)

Justices Myers (opinion, related here), Osborne and Nowell

Mason claimed that while staying at a hotel on June 30, 2017, she was taking a shower and the tub floor moved, causing her to fall and hit her head. On June 13, 2019, Mason sued the hotel in state court for negligence. But in April 2018, Mason had filed for Chapter 7 bankruptcy without listing his potential claim against the hotel on his asset list. By the end of 2018, Mason had received a discharge and the bankruptcy filing was complete.

The hotel initially sought summary judgment, alleging that Mason lacked standing to assert the claim and was judicially barred from bringing the claim. The hotel argued that since Mason did not disclose the claim in his bankruptcy schedules, the claim remained with the bankruptcy assets and was not returned to him at the end of the bankruptcy. Mason then filed a motion in bankruptcy court to reopen the bankruptcy to amend his schedules to add the negligence claim, which the bankruptcy court granted.

In January 2021, Moser, the bankruptcy trustee, filed an amended petition in the state court case on behalf of Mason’s estate, alleging the same negligence claim against the hotel. The hotel sought summary judgment, arguing that the amended motion was filed after the two-year statute of limitations had expired. The trial court granted the motion.

Moser’s appeal centered on the doctrine of the return relationship. Section 16.068 of the Texas Civil Practice and Remedies Code states that where a party initially brings a timely claim, “a subsequent amendment or supplement to the pleading that alters the facts or the grounds of liability or defense is not subject to a plea of ​​limitation unless the modification or supplement is entirely based on a new, separate or different transaction or event.” But the doctrine of return relationship does not apply to an amended motion where the trial court did not have jurisdiction over the original motion.

Mason first brought his claim for negligence within the two-year statute of limitations, and Moser’s amended petition on behalf of the bankruptcy estate alleged the same facts as Mason’s original petition. Thus, in determining whether the return relationship doctrine applied, the appeals court considered whether the trial court had jurisdiction when Mason brought the first lawsuit.

The appeals court explained that for the trial court to lack jurisdiction due to lack of standing, Mason must lack “constitutional” standing. The Court noted that courts have sometimes blurred the distinction between standing and capacity – an essential if sometimes confusing distinction, because standing is jurisdictional, while capacity is not. In 1999, the Texas Supreme Court ruled in Douglas v. Delp that a trustee in bankruptcy had “exclusive standing” to bring claims on behalf of the estate, citing a 1994 Fifth Circuit decision that did not expressly address the issue of constitutional capacity. After careful analysis of subsequent Fifth Circuit cases on a trustee’s power to bring claims on behalf of the estate as well as subsequent decisions of the Texas Supreme Court dealing with the distinction between standing and capacity, the appeals court found that the Texas Supreme Court had implicitly struck down Douglas and the various interim appellate decisions – including those of the Fifth Court – that had followed it.

As a result, the court said, Mason had standing to press charges in 2019; she just didn’t have the ability to say it. Therefore, the trial court had jurisdiction over the matter in 2019, Moser’s amended petition in 2021, in his capacity as trustee in bankruptcy, was related to Mason’s timely petition in 2019, and the trial court found erred in granting summary judgment based on the limitation period.