d/b/a Vaughn Construction Company

DEBTOR CASE NO. 91-60823





VS. ADV. NO. 93-6024








This matter is before the Court on the defendant's Motion to Dismiss, filed herein on July 14, 1993. The plaintiff filed his Response on August 3, 1993, and the defendant filed a Reply on August 10, 1993. 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)(C). The plaintiff has requested a jury trial in this proceeding.

The plaintiff initiated this matter by the filing of his Complaint on June 11, 1993. Therein he alleged that the defendant had initiated a criminal proceeding against the debtor in Lee District Court on November 5, 1991. The debtor had filed a Chapter 11 petition in this Court on November 5, 1991; he converted his case to a Chapter 7 on June 30, 1992. A felony criminal warrant was issued based on the accusation that the debtor had issued a false financial statement to the defendant. The criminal charge against the debtor was dismissed by the Lee District Court on June 11, 1992.

The defendant's Motion to Dismiss is based on the contention that the plaintiff does not have standing to assert a claim for malicious prosecution on behalf of the debtor because the claim, if any, accrued after the debtor filed his bankruptcy petition. The defendant asserts that a cause of action for malicious prosecution does not accrue "...until there has been a final termination of the action upon which the action for malicious prosecution is based." Central Acceptance Corp. v. Rachal, Ky., 95 S.W.2d 777, 779 (1936). Therefore, the defendant contends, the alleged cause of action was not property of the estate as of the commencement of the case, i.e., November 5, 1991. The defendant, for purposes of its motion to dismiss, does not deny the plaintiff's allegations that the felony warrant was issued at the insistence of the defendant and prosecuted without probable cause.

The defendant is correct in asserting that the effective date for purposes of determining when the alleged cause of action became property of the estate is November 5, 1991. Conversion of a case does not effect a change in the date of the commencement of the case. See 11 U.S.C. '348(a). In addition, '541 provides that, with certain exceptions inapplicable here, estate property is established as of the commencement of the case. Therefore, the plaintiff must establish that the alleged cause of action became property of the estate as of November 5, 1991.

The case relied upon by the defendant, Rachal, supra, does not address the other elements required to establish a cause of action for malicious prosecution. As set out in Cravens v. Long, 257 S.W.2d 548, Ky., (1953),

The indispensable elements of an action for malicious prosecution which must affirmatively appear are; (1) that the defendant was the proximate and efficient cause of putting the law in motion against the plaintiff; (2) that he did so maliciously; and (3) without probable cause. When the three elements concur, the action may lie as the result of the prosecution of a civil as well as a criminal action. Malice may be inferred from the want of probable cause but the absence of probable cause is never presumed and must always be shown affirmatively.

At page 549. The court in Farris v. Sears, Roebuck & Co., 455 F.Supp. 162, 164 (W.D.Ky. 1978) includes termination of the proceeding in favor of the accused on the list of elements of a cause of action for malicious prosecution, and states that such termination is required by Kentucky law, citing Worley v. Columbia Gas of Kentucky, 491 F.2d 256, 261 (6th Cir. 1973). Another element, stated by the court in Raine v. Drasin, 621 S.W.2d 895, 899, Ky. (1981), is the suffering of damage as a result of the proceeding.

The plaintiff concedes in his Response that termination of the proceeding in favor of the accused is a "condition precedent" to the establishment of a cause of action for malicious prosecution. He appears to argue, however, that it is but one element, and that if the plaintiff can demonstrate that the other essential elements exist, he should prevail. He correctly argues that property of the estate includes claims of the debtor against other parties, and that the Bankruptcy Code defines "claim" very broadly. See 11 U.S.C. '101(5). He must also, however, establish that that claim existed at the time of filing of the Chapter 11 petition.

While the other elements of a malicious prosecution action do appear to have been present in this case at the time the debtor filed his Chapter 11 petition, the criminal action had not been terminated in his favor at that time. Therefore, he had not established a cause of action for malicious prosecution until after the Chapter 11 petition was filed. As stated by the court in In re Doemling, 127 B.R. 954 (W.D.Pa 1991):

...property acquired by the debtor after the commencement of the bankruptcy proceeding will become property of the estate only if it is sufficiently rooted in the prebankruptcy past and is not entangled with the bankrupt's ability to make an unencumbered fresh start.

At page 957. Similarly, the cause of action for malicious prosecution is not sufficiently rooted in this debtor's prebankruptcy past, and cannot be considered property of the estate.

It is therefore the opinion of this Court that the plaintiff does not have standing to bring this action, and the defendant's Motion to Dismiss should be sustained. An order in conformity with this opinion will be entered separately.


By the Court -






Copies to:


Gene Lynn Humphries, Esq.

R. Gregory Lathram, Esq.