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Auge v. Stryker Corporation

United States District Court, D. New Mexico

October 4, 2019

WAYNE KENNETH AUGÉ, II, M.D., Individually and as Trustee on Behalf of Covalent Global Trust, Plaintiff,
v.
STRYKER CORPORATION, and HOWMEDICA OSTEONICS CORP., Defendants.

          ORDER TO SHOW CAUSE

         This matter comes before the Court upon Defendants' Statement Concerning Plaintiff's Notice of Self Representation (“Statement”), filed September 23, 2019; Plaintiff's Statement Regarding Defendants' Statement, filed September 27, 2019; Defendants' Reply to its Statement, filed September 30, 2019; and Plaintiff's Reply to Defendants' Statement, filed October 4, 2019. (Docs. 288, 292, 297, and 300). Having considered the parties' briefing, the record of this case, and relevant law, the Court orders Dr. Augé to show cause why this case should not be dismissed without prejudice.

         I. Background

         On December 1, 2003, Dr. Augé created The Covalent Global Trust (“CGT”). (Doc. 288-1) at 2-13. More than ten years later, on February 14, 2014, Dr. Augé filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. (Doc. 1) filed in 14-10443-TA. Later that year, on December 2, 2014, Dr. Augé filed his Complaint in this Court, in which he brought claims “in his individual capacity and as trustee on behalf of The Covalent Global Trust, ” and stated that the CGT is “a revocable trust [Dr. Augé] created in 2003, to which he has caused assets to be assigned that include rights and interests that are the subject of this Complaint.” (Doc. 1) at 1-2.[1]

         On July 23, 2015, the Bankruptcy Court converted Dr. Augé's Chapter 11 bankruptcy to a Chapter 7 proceeding and appointed Clarke C. Coll as the Chapter 7 Trustee. (Doc. 261) filed in 14-10443-TA. As a result, Trustee Coll filed a Notice of Substitution in this case in which Trustee Coll substituted himself as Plaintiff. (Doc. 30). After proceeding as Plaintiff in this case for more than two years, Trustee Coll filed a second Notice of Substitution, in which he notified the Court that he had abandoned the bankruptcy estate's claims in this lawsuit and substituted Dr. Augé as the Plaintiff in place of Trustee Coll. (Doc. 184). Trustee Coll abandoned these claims because the bankruptcy estate had satisfied all general unsecured claims and expenses, so Trustee Coll found that pursuit of the claims would be “burdensome to the estate.” (Doc. 505) at 3, filed in 14-10443-TA (citing Bankruptcy Code § 554(a) (“[A]fter notice and hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate.”)).

         After participating in a second unsuccessful settlement conference in this case, on August 2, 2019, Dr. Augé's attorneys filed a motion to withdraw as counsel. (Doc. 260). The Court then entered an order granting the motion to withdraw and giving Dr. Augé an opportunity to either retain other counsel or notify the Court that he will proceed pro se. (Doc. 278). On September 13, 2019, Dr. Augé filed a timely notice electing to proceed pro se. (Doc. 282).

         In their Statement, Defendants challenge Dr. Augé's ability to proceed pro se on behalf of CGT. (Doc. 288) at 1. Defendants note that Dr. Augé filed this lawsuit both in his individual capacity and as trustee on behalf of CGT, and asserted that he assigned the “rights and interests that are the subject of this Complaint” to CGT. Id. at 2 (citing Doc. 1 at 2, ¶ 2, and Doc. 34 at 2, ¶ 2).[2] Because CGT holds the rights and interests that are the subject of this lawsuit, and because CGT cannot be represented by a pro se party, Defendants ask the Court to dismiss this case without prejudice. Id. at 2-4.

         In response to Defendants' Statement, Dr. Augé first asserts that if CGT is still a party to this case, then it is currently represented by counsel because the Court's order granting counsel's motion to withdraw related “only to Plaintiff Wayne K. Augé, II, M.D. individually, ” and not to Dr. Augé as trustee on behalf of CGT. (Doc. 300) at 2. In the alternative, Dr. Augé asserts that CGT is not a party to this case because the second Notice of Substitution substituted only Dr. Augé as Plaintiff in place of Trustee Coll, not CGT. Id. at 2-3 (citing Docs. 184 and 187). Dr. Augé contends that the substitution occurred as a result of the Bankruptcy Court dissolving CGT. Id.

         In reply, Defendants dispute that the Bankruptcy Court dissolved CGT leaving Dr. Augé as the sole remaining claimant in this case. (Doc. 297) at 1. Instead, Defendants argue that when Trustee Coll abandoned the bankruptcy estate's claims in this case, the claims reverted back to their status prior to assignment to the bankruptcy estate. Id. at 3. Therefore, Defendants maintain that Dr. Augé is still the trustee of CGT, and that CGT owns the “rights and interests that are the subject of” this lawsuit. Accordingly, Defendants conclude Dr. Augé lacks standing to proceed pro se on behalf of CGT. Id. at 3-4.

         II. Discussion

         First, Defendants' “Statement” is not the proper way to request the Court to act. Instead, “[a] request for a court order must be made by motion.” Fed.R.Civ.P. 7(b)(1). Nevertheless, Defendants are correct that the Court's Local Rules require “[a] corporation, partnership or business entity other than a natural person” to be represented by an attorney. D.N.M. LR-Civ. 83.7; see also United States v. Lain, 773 Fed.Appx. 476, 477 (10th Cir. 2019) (holding trustee may not represent trust unless he or she is licensed attorney). In Lain, the Tenth Circuit explained that “[t]rusts are artificial entities that exist independently of their trustee or trustees, ” and “[a]lthough individuals may represent their own personal interests without an attorney, artificial entities may appear in court only through licensed counsel.” Id. (citing Rowland v. Cal. Men's Colony, Unit II Men's Advisory Council, 506 U.S. 194, 202 (1993) (“It has been the law for the better part of two centuries … that a corporation may appear in the federal courts only through licensed counsel. As the courts have recognized, the rationale for that rule applies equally to all artificial entities.”); see also United States v. Cram, 1998 WL 919871, at *6 (D. Utah) (reasoning that rule prohibiting pro se representation of trust serves to protect beneficiaries of trust who “would not be able to sustain a malpractice action against a trustee representing a trust pro se”). Therefore, the Court must determine if CGT is still a party to this case requiring representation of counsel.

         Dr. Augé first argues that the Court's order allowing his counsel to withdraw from representing him did not apply to its representation of CGT. (Doc. 300) at 2. Indeed, neither counsel's motion to withdraw nor the Court's order granting that motion referred to CGT. (Docs. 260 and 277). The Court's order granting the motion to withdraw further referenced Trustee Coll's Notice of Substitution providing that Dr. Augé was Plaintiff instead of Trustee Coll. (Doc. 277) at 1, n.1. Nevertheless, Dr. Augé brought this action both individually and as trustee on behalf of CGT, and has not distinguished in the course of this litigation between his individual claims and his claims as trustee. See (Doc. 34). Moreover, the engagement letter between Dr. Augé and his counsel makes no reference to CGT and, instead, refers only to Dr. Augé engaging counsel's services to assist in pursuing a claim against Defendants. (Doc. 269) at 11-13. Dr. Augé presents no evidence to support a finding that his counsel still represents CGT in this case. Therefore, the Court rejects Dr. Augé's argument that his former counsel continues to represent CGT.

         Next, Dr. Augé asserts that CGT is no longer a party to this case pursuant to Trustee Coll's Notice of Substitution. (Doc. 300) at 2-3 (citing Doc. 184). Dr. Augé argues that the Notice of Substitution only pertained to Dr. Augé individually, and that CGT remained property of the bankruptcy estate. Id. During the pendency of a bankruptcy proceeding, the debtor's estate becomes the bankruptcy estate. 11 U.S.C. § 541. Consequently, when the Bankruptcy Court appointed Trustee Coll as bankruptcy trustee in Dr. Augé's Chapter 7 proceeding, he was also substituted as Plaintiff in this action. See (Doc. 30). And when Trustee Coll abandoned this cause of action pursuant to 11 U.S.C. § 554(a), he filed a second Notice of Substitution notifying the Court that Dr. Augé was once again the Plaintiff in this case. (Doc. 184). Importantly, however, when a bankruptcy trustee abandons property under Section 554(a), it “reverts to the debtor, and stands as if no bankruptcy petition was filed.” In re Dewsnup, 908 F.2d 588, 590 (10th Cir. 1990), aff'd 502 U.S. 410 (1992); see also In re Gravure Paper Bd. Corp., 234 F.2d 928, 930-31 (3d Cir. 1956) (“[W]hen the trustee in bankruptcy abandons an asset, he is to be treated as having never had title to it; the abandonment is said to relate back, so that the title stands as if no assignment had been made.”) (citations omitted). Therefore, since CGT owned the “rights and interests” that are the subject of this action prior to assignment to the bankruptcy estate, those assets reverted back to CGT upon Trustee Coll's Section 554(a) abandonment. Hence, CGT resumed its status as a party in this lawsuit.

         In addition, Dr. Augé contends that after he was substituted as Plaintiff for Trustee Coll, the caption used by the parties and the Court no longer referred to Dr. Augé proceeding as trustee on behalf of CGT. (Doc. 300) at 2-3. However, neither Trustee Coll's Notice of Substitution nor the caption used in the pleadings can serve to amend the Complaint to exclude CGT as a party. See Fed. R. Civ. P. 15 (setting out the procedure to amend a pleading); U.S. ex rel. Eisenstein v. City of N.Y., N.Y., 556 U.S. 928, 935 (2009) (“The caption is not determinative as to the identity of the parties to the action.”) (quoting 5A C. Wright & A. Miller, Fed. Prac. and Proc. § 1321, p. 388 (3d ed. 2004)); Welch v. Laney, 57 F.3d 1004, 1010 (11th Cir. 1995) (explaining that complaint itself, rather than caption to complaint, controls identification of parties and capacity in which they are sued). The Court recognizes that Trustee Coll's Notice of Substitution stating that Dr. Augé was the Plaintiff going forward implied that Dr. Augé was proceeding individually. Regardless, when Trustee Coll abandoned the claims in this lawsuit, they reverted to the parties who had possession of them prior to the bankruptcy proceeding, which included CGT.

         To the extent Dr. Augé argues that the bankruptcy proceedings dissolved CGT, the record does not support such a finding. Dr. Augé argues that “[a]ll [CGT] assets were decreed owned by Dr. Augé pursuant summary judgment [sic] in Adversary No. 14-1049 t.” (Doc. 300) at 2 (citing Doc. 89, filed in 14-1049-t). In the summary judgment order relied on by Dr. Augé, the Bankruptcy Court explained that CGT's assets are part of Dr. Augé's bankruptcy estate, noted that Dr. Augé did not list CGT's assets on his bankruptcy schedules, and required Dr. Augé to amend his bankruptcy schedules to clarify that CGT's assets are the property of the bankruptcy estate. (Doc. 89) filed in 14-1049-t. This summary judgment order did not, however, serve to dissolve or liquidate CGT. Indeed, the Final Account and Distribution Report entered at the close of Dr. Augé's bankruptcy proceeding on February 12, 2018, lists the assets still held by CGT, indicating CGT still existed at that time. See (Doc. 530) filed in 14-10443-TA at 9-13. Moreover, courts have held that Chapter 7 proceedings cannot serve to dissolve a business entity. See, e.g., F.P. Woll & Co. v. Fifth and Mitchell St. Corp., 2001 WL 34355652, at *3 (E.D. Penn.) (“The legislative history of Section 727(a)(1) of the Bankruptcy Code … supports the conclusion that a corporation which has been liquidated in a bankruptcy ...


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