X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:Donald E. Armstrong was the settlor, trustee and beneficiary of two trusts he created in 1983 and 1994. On behalf of the trusts, Armstrong sold an apartment complex in Texas to Steppes Apartments Ltd. Steppes eventually sued Armstrong, as trustee, for a declaration that Armstrong was in default on notes used to finance the deal. Armstrong hired Capshaw, Goss and Bowers (CGB) to represent him in the case, which resulted in a $1.3 million judgment for Steppes. After the court loss, still acting as trustee, Armstrong filed a legal malpractice lawsuit against CGB. The case was abated while the Steppes judgment was on appeal. Meanwhile, in 1999, Armstrong got judgment against himself, as trustee, in a Utah state court. The Utah court judgment transferred all of the trusts’ assets and property � including rights to any litigation � to Armstrong, individually. Armstrong dissolved the trusts. Armstrong filed a pro se petition for Chapter 11 bankruptcy in Utah in March 2000. Kenneth Rushton was appointed as bankruptcy trustee and his reorganization plan was approved on Jan. 31, 2002. As part of the plan, Armstrong was said to have acquired all of the trusts’ assets � by virtue of the Utah court judgment. Therefore, all of the assets and interest that formerly belonged the trusts were now property of the bankruptcy estate and controlled by Rushton. “Based on Armstrong’s history of litigiousness and repeated refusals to comply with the bankruptcy court’s orders, the bankruptcy court enjoined Armstrong from pursuing or engaging in any litigation that would interfere with the Confirmation Order.” Rushton then stepped in to take over the legal malpractice action and began settlement negotiations. Armstrong, however, intervened, then filed a notice of removal to federal district court in Texas. Once in federal court, CGB objected to Armstrong’s intervention, saying Armstrong had not complied with federal standards for intervention. The district court denied Armstrong’s motion to amend his complaint in intervention. Concomitantly, it found Armstrong had not lived up to the federal rules for intervention. Specifically, the court stated that Armstrong lacked the requisite interest in the action, since all of the property formerly belonging to the Trusts was now part of the bankruptcy estate. The court then administratively closed the case pending settlement negotiations. A settlement was reached in May 2003, and the district court dismissed the case with prejudice. Armstrong appeals. HOLDING:Affirmed. The court reviews Armstrong’s intervention in federal court, agreeing that Armstrong followed the correct procedure for intervening in state court, but that state and federal rules are different. To intervene under Federal Rule of Civil Procedure 24(a)(2), a party must meet the following requirements: 1. the application for intervention must be timely; 2. the applicant must have an interest relating to the property or transaction which is the subject of the action; 3. the applicant must be so situated that the disposition of the action may, as a practical matter, impair or impede his ability to protect that interest; 4. the applicant’s interest must be inadequately represented by the existing parties to the suit. Armstrong has no interest in the claims against CGB in his individual capacity, the court finds. “Though it is undeniably clear that Armstrong feels he has been, and continues to be, unjustly injured by the Steppes Judgment, the effect of that judgment does not give rise to any recognizable legal interest in this malpractice action,” the court continues. Any individual claims Armstrong may have had against CGB relating to their representation of Armstrong and the trusts are now part of the bankruptcy estate, as they arose before Armstrong filed for bankruptcy. Likewise, Armstrong cannot intervene as a beneficiary of the trusts. Though Armstrong asserts that he acquired a remainder interest in the trusts by purchasing property from the National Ability Center after he filed for bankruptcy, the court cannot discern the nature of these purported interests. Furthermore, Armstrong cannot show that any post-petition interests in the trusts still exist. OPINION:Prado, J., delivered the court’s opinion.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.