CASE NO. CASE NO. 88-00583





VS. ADV. NO. 90-0249





This matter is before the Court on the Motion of the defendant for Summary Judgment pursuant to Federal Rule of Civil Procedure 56. The defendant alleges that there are no issues of law or fact, and that he is therefore entitled to summary judgment. The plaintiff has filed a response. This Court has jurisdiction of this matter pursuant to 28 U.S.C. '1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2).

The plaintiff initiated this matter by the filing of a Complaint (Civil Action No. 90-CI-01091) in Kenton Circuit Court on July 3, 1990. The defendant, trustee for the estate of the debtor, filed his Application for Removal on July 19, 1990, and the case was removed to this Court on that date. The defendant filed his Answer in this proceeding on July 19, 1990, as well. The plaintiff filed a Motion for Remand on August 17, 1990, and the defendant filed his response thereto on August 30, 1990. This Court issued its Report and Recommendation in that regard on December 3, 1990, recommending that plaintiff's Motion be overruled. The defendant filed his Motion for Summary Judgment on December 3, 1990, and the plaintiff filed its response on December 4, 1990.

The plaintiff's Complaint alleges that it is the holder of a promissory note in the principal amount of $60,000.00 from two creditors of the debtor, Frank and Edna Torline ("the Torlines"), that said note was secured by the Torlines to the plaintiff by the pledge of two certificates of deposit (identified by the debtor as "certificates of investment") issued by the debtor, that the plaintiff has, and continues to have, a perfected security interest in the certificates of deposit, and that in violation of said security interest the defendant, as trustee for the debtor, paid to the Torlines a total of $9,210.00 as liquidation or partial liquidation of the debt owed the Torlines by the debtor. The issue raised by the Complaint is the responsibility of the trustee, if any, to a party that is not a creditor of the debtor, a party that had an opportunity to file a claim but did not.

The record in this case reveals that the debtor filed a Chapter 7 petition in this Court on June 21, 1988. The first meeting of creditors took place on August 2, 1988. The Torlines were listed as creditors of the debtor, Edna Torline being the owner of the debtor's certificates of investment nos. 02017 and 3000, and Frank Torline being the owner of the debtor's certificate of investment no. 02018, which represent claims against the debtor. On March 3, 1986, the Torlines had executed a Promissory Demand Note to the plaintiff and pledged as security the certificates of investment numbered 02017 and 02018. The plaintiff is currently in possession of these certificates.

On September 29, 1988, Edna Torline filed a Proof of Claim in the amount of $31,400.00 and Frank Torline filed a Proof of Claim in the amount of $30,000.00 in the debtor's bankruptcy case, based on the certificates referred to hereinabove. The Torline's Proofs of Claim did not disclose the plaintiff's interest in the certificates. No objection was filed to the Torlines' claims and they were allowed as filed. On December 14, 1989, this Court entered an Order for Payment of Dividends on all allowed claims, including $4710.00 to Edna Torline and $4500.00 to Frank Torline, and the trustee/defendant herein paid the dividend pursuant to the Court's order. The plaintiff has never filed a Proof of Claim in the debtor's bankruptcy case, although it was aware of the filing. (See deposition of Lee Scheben, p.23).

As the trustee/defendant has pointed out, the plaintiff had an interest in the claims of the Torlines. Pursuant to 11 U.S.C. '101(4), an equitable remedy is included in the definition of "claim". The plaintiff could have brought its interest before the bankruptcy court by timely filing its own claim. Bankruptcy Rule 3001(e)(3) sets out the procedure for disposition of a claim involving a transferor and transferee of that claim, when the transfer was for security. Either the transferor or the transferee, or both, may file the claim. The plaintiff, however, chose not to file a claim. The Torlines did. Their claims were allowed, no objections were filed, and they were paid dividends by order of the Court.

While the plaintiff has not plead breach of duty on the part of the defendant, consistently referring to a "violation" of its security interest, a fair reading of its pleadings suggests that this is indeed the basis of its case. In order for a breach to occur there must exist a corresponding duty. It is well settled that the trustee's "main duty" is to close the estate as quickly and expeditiously as possible with the best interests of the parties in interest. In fact the trustee's duties are owed only to the estate and its creditors. In re Riverside-Linden Inv. Co., 85 B.R. 107, 113 (Bkrtcy S.C.Cal. 1988). The trustee is only a fiduciary for the creditors. In In re 2001 Cincinnati, Inv. VIP Clubs of America, 43 B.R. 6 (Bkrtcy S.D. Ohio 1984), the court stated, "In the case before us, plaintiff was not a creditor of the debtor. It follows that defendant owed plaintiff no fiduciary duty." At p. 7. See also Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 462 n. 8 (6th Cir. 1982). The plaintiff has made much of the fact that the trustee/defendant paid dividends to the Torlines on the basis of copies of the fronts of their certificates of investment only, alleging that the absence of copies of the backs of the certificates should have suggested that something was wrong. In fact all the creditors of the debtor who filed claims based on the same or similar certificates only filed copies of the fronts of those certificates. Indeed, the trustee/defendant owed no duty to the plaintiff to look beyond the claims filed by the Torlines, legitimate creditors of the debtor. The trustee/defendant fulfilled his duty to the creditors, including the Torlines, by paying the Court-ordered dividends.

This Court concludes therefore that the trustee/defendant has carried forward his burden of demonstrating that there is no genuine issue as to any material fact and that pursuant to FRCP 56 he is entitled to judgment as a matter of law. It is therefore the opinion of this Court that the trustee/defendant's Motion for Summary Judgment should be SUSTAINED.



By the Court -







Copies to:

Paul J. Vesper, Esq.

H. Lawson Walker, II, Esq.

Charles L.J. Freihofer, Esq., Trustee