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Wisdom v. Gugino

United States District Court, D. Idaho

October 9, 2019

ALLEN L. WISDOM, an individual, Appellant,
v.
JEREMY J. GUGINO, an individual, FRANCES R. STERN, an individual, ANTHONY M. PANTERA IV, an individual, NEW YORK LIFE INSURANCE COMPANY, a Mutual Life Insurance Co., TERRY MICHAELSON, an individual, HAMILTON MICHAELSON & HILTY, LLP, an Idaho Limited Liability Partnership, KAREN MCMURTRIE, an individual, Appellees. Bankr. No. 11-01135-JDP

          MEMORANDUM DECISION AND ORDER ON APPEAL

          David C. Nye Chief U.S. District Court Judge

         I. INTRODUCTION

         Pending before the Court in the above-entitled matter is Plaintiff-Appellant Allen L. Wisdom's appeal of the United States Bankruptcy Court for the District of Idaho's May 5, 2015 and March 7, 2016 orders dismissing Defendants-Appellees New York Life Insurance Company, Frances R. Stern, and Anthony M. Pantera IV from the adversary proceeding. The parties filed responsive briefing and the matter is now ripe for decision. Having fully reviewed the docket herein, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decision-making process would not be significantly aided by oral argument, this matter shall be decided on the record before this Court without oral argument.

         II. BACKGROUND

         1. The Underlying Bankruptcy Case

         Allen L. Wisdom (“Wisdom”) originally filed for chapter 7 bankruptcy relief on April 19, 2011, commencing Case No. 11-01135-JDP. He was represented in the bankruptcy by private counsel-Frances R. Stern (“Stern”) and Anthony M. Pantera IV (“Pantera”) (now Appellees). The chapter 7 trustee of his estate was Jeremy Gugino (“Trustee”).

         At the time Wisdom filed for chapter 7 relief, he had an interest in five different insurance policies with Defendant-Appellee New York Life Insurance Company (“NY Life”). On May 18, 2011, shortly after filing for relief, Wisdom tried to claim four of the policies as exempt under Idaho law and $5, 000 of the fifth policy as exempt pursuant to Idaho Code § 11-605(10). Trustee objected, arguing that Idaho Code § 11-605(10) allows for one exemption, capped at a total of $5, 000 as to all of the policies. Because Wisdom did not oppose or respond to Trustee's objection, the Bankruptcy Court sustained his objection on June 29, 2011.

         On July 7, 2011, Trustee sent a letter to NY Life ordering it to liquidate Wisdom's fifth policy and to provide the funds to Trustee. NY Life forwarded the letter to Wisdom within a few days. A few months later, Wisdom was notified that NY Life was also liquidating the four other policies. After NY Life liquidated the remaining policies, it provided Trustee with a check for the proceeds. Trustee then sent Wisdom a $5, 000 check for his allowed exemption under Idaho Code § 11-605(10), which Wisdom cashed.

         On June 27, 2012, Wisdom filed an objection to the liquidation and asked for the return of the liquidated policies. In his filings, he suggested that Trustee's actions in liquidating the policies were inappropriate. The Bankruptcy Court denied the objection and found that Wisdom was entitled solely to the $5, 000 exemption he had expressly asserted and been duly paid. Furthermore, the Bankruptcy Court found that the “Debtor's suggestions that Trustee's actions were ‘unilateral' or inappropriate are baseless, and most assuredly, Trustee engaged in no ‘intentional misrepresentation' or ‘fraud' in dealing with the estate assets.” In re Wisdom, No. 11-01135-JDP, 2015 WL 2128830, at *4 (Bankr. D. Idaho May 5, 2015).

         2. Appeal of the Underlying Bankruptcy Case

          Wisdom appealed the bankruptcy court's determination that Trustee properly liquidated five of Wisdom's life insurance policies to both the district court and the Ninth Circuit. Both affirmed. In its affirmation, the Ninth Circuit found that to the extent Trustee owed Wisdom a fiduciary duty to preserve his interest in the value of life insurance policies, Trustee fulfilled that duty. Wisdom v. Gugino, 649 Fed.Appx. 583, 58 (9th Cir. 2016). It also found Trustee breached his procedural obligations under 11 U.S.C. § 363(b)(1) by liquidating Wisdom's insurance policies without providing separate notice and opportunity for a hearing. Id. at 585. However, Wisdom was not prejudiced by Trustee's failure to satisfy § 363(b) because Wisdom had actual notice of the impending liquidation of the policies. Id. “In sum, Wisdom's claims against the trustee are without merit.” Id.

         3. The Adversary Proceeding

         On December 3, 2013, Wisdom initiated an adversary proceeding in bankruptcy court against Trustee, NY Life, and his bankruptcy counsel.[1] Adv. Case No. 13-06045-TLM. Wisdom raised claims of breach of contract, breach of fiduciary duty, negligence, tortious interference with contract, constructive fraud, legal malpractice, intentional and negligent infliction of emotional distress, slander per se, and civil conspiracy. The claims allege Trustee improperly liquidated the insurance policies in the underlying bankruptcy proceeding and that Trustee committed fraud and violated the fiduciary duty he owed to Wisdom. Relatedly, they allege that NY Life improperly liquidated policies in the underlying bankruptcy proceeding and NY Life breached its contract and fiduciary duties. Finally, Wisdom alleges that bankruptcy counsel violated their contractual, tortious, and professional duties in how they handled 1) Trustee's liquidation of Wisdom's insurance policies; 2) the bankruptcy process of the sale or compromise of Wisdom's pro se lawsuits that, on filing, became property of the estate; and 3) their withdrawal from representation.

         4. The Dismissal of Defendant-Appellees in the Adversary Proceeding

         On May 5, 2015, the Bankruptcy Court granted Defendant-Appellee NY Life's Motion for Judgment on the Pleadings. In doing so, it dismissed the adversary proceeding against NY Life, sua sponte and under 28 U.S.C. § 157(b)(3) and Civil Rule 12(h)(3), on the grounds that it lacked subject matter jurisdiction. The Bankruptcy Court found that the action against NY Life was not a core proceeding under the bankruptcy code and did not “relate to” a bankruptcy case within the meaning of 28 U.S.C. § 1334(b). In re Wisdom, No. 11-01135-JDP, 2015 WL 2128830 (Bankr. D. Idaho May 5, 2015).

         On March 7, 2016, the Bankruptcy Court granted Defendants-Appellees Stern and Patera's Motion for Summary Judgment. In doing so, it dismissed the adversary proceeding against Stern and Pantera, sua sponte and under 28 U.S.C. § 157(b)(3) and Civil Rule 12(h)(3), on the grounds that it lacked subject matter jurisdiction. The Bankruptcy Court held the action involving contract, tort, and legal malpractice claims against private counsel in and during the chapter 7 proceedings was not a core proceeding under the bankruptcy code and did not “relate to” a bankruptcy case within the meaning of 28 U.S.C. § 1334(b). In re Wisdom, No. 11-01135-JDP, 2016 WL 872102 (Bankr. D. Idaho Mar. 7, 2016).

         On August 24, 2018, the Bankruptcy Court entered an order denying Wisdom's motion for Rule 54(b) Certification. On September 10, 2018, the Bankruptcy Court dismissed the remaining defendants in the adversary proceeding.

         5. Prior Appeal in the Adversary Proceeding

         The Court takes judicial notice of a prior appeal in Wisdom's bankruptcy adversary proceeding. In that appeal, Wisdom argued that Gugino was never properly a trustee in the case and therefore every action taken by him as trustee is void ab initio. The Ninth Circuit affirmed the district court's judgment upholding the bankruptcy court's determination that Gugino was the proper trustee in this case. In re Wisdom, 770 Fed.Appx. 881, 882 (9th Cir. 2019). All other claims raised against Gugino were dismissed as meritless or duplicative of issues already raised and rejected in other appeals.

         6. The Pending Appeal

         On September 11, 2018, Wisdom filed his Notice of Appeal of the orders dismissing NY Life, Stern, and Pantera (collectively “Appellees”) from the adversary proceeding for lack of subject matter jurisdiction. As all of the claims against all parties were resolved on September 10, 2018, the interlocutory orders relating to the dismissal of Appellees became final ...


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