11 U.S.C. §§541, 544; Property of the Estate; Georgia RICO
In re Stewart, 2006 U.S. Dist. LEXIS 11356, Case N0. 3:05-CV-41 (M.D. Ga. March 14, 2006)(Land)
Prior to the debtor’s bankruptcy filing, the creditor filed a state court action against debtor and others based upon allegations that the debtor fraudulently transferred assets to family members. The creditor subsequently added a claim under Georgia RICO and subsequent to the bankruptcy filing, requested that the automatic stay be lifted to pursue the claim against the non-debtors. The Chapter 7 trustee opposed and claimed that the RICO claim was property of the estate. The Bankruptcy Court granted the motion to lift stay and the trustee appealed.
The District Court affirmed the Bankruptcy Court order. The trustee succeeds to the rights of the debtor and has standing to bring suits that the debtor could have brought outside bankruptcy. However, the trustee is also limited by certain defenses that could have been raised against the debtor. Under the theory of “in pari delicto” is an equitable defense that provides that a plaintiff who has participated in wrongdoing may not recover damages from the wrongdoing. Here, the debtor is alleged to have participated in the wrongful acts. The Eleventh Circuit Court of Appeals has held that a trustee is barred from asserting a federal RICO claim against a debtor’s co-conspirators where the debtor was an active participant in the activities, and the District Court stated that there was no reason why the same rule should not apply to Georgia RICO cases since the Georgia statute was modeled upon the federal statute. The Court further held that the trustee could not used §544 to pursue the claims because the claims are neither actual nor potential property of the estate.