Armstrong v. Capshaw Goss & Bower ( 2005 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED MAY 3, 2005
March 28, 2005
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
______________________ Clerk
No. 03-11092
______________________
DONALD E. ARMSTRONG, as Trustee of the Donald E. Armstrong Family
Trust and the Donald E. Armstrong Charitable Remainder Unitrust,
Plaintiff - Appellant,
DONALD E. ARMSTRONG, Post-Bankruptcy Petition as a Post-
Bankruptcy Petition Beneficiary of the Donald E. Armstrong Family
Trust and the Donald E. Armstrong Charitable Remainder Unitrust,
Intervenor Plaintiff – Appellant,
v.
CAPSHAW, GOSS & BOWERS, LLP,
Defendant – Appellee.
Appeal from the United States District Court
for the Northern District of Texas, Dallas
Before REAVLEY, JOLLY, and PRADO, Circuit Judges.
EDWARD C. PRADO, Circuit Judge:
Donald E. Armstrong intervened in this legal malpractice
action while it was administratively closed in state court.
After removing the case to federal court, Armstrong moved to
amend his complaint in intervention. The district court denied
the motion, holding that Armstrong did not meet the federal
standards for intervention of right. We AFFIRM.
I. BACKGROUND
1
The proceedings leading up to, and concomitant with, this
legal malpractice action are numerous and varied. As noted by a
Bankruptcy Appellate Panel of the Tenth Circuit, “Appellant is a
familiar and frequent litigant in . . . the Texas, Utah, and
Georgia state courts, the federal courts sitting in Utah, the
United States Court of Appeals for the Tenth Circuit [], and the
United States Supreme Court.” Armstrong v. Rushton, 303 B.R.
213, 214-15 (B.A.P. 10th Cir. 2004). We limit the following
discussion to the facts and procedural history pertinent to this
appeal.
Armstrong was the settlor, trustee, and beneficiary of two
trusts: the Donald E. Armstrong Family Trust, which he created in
1983; and the Donald E. Armstrong Charitable Remainder Unitrust,
which he created in 1994 (collectively, the “Trusts”). In 1994,
Armstrong sold an apartment complex in Texas to Steppes
Apartments, Ltd. (“Steppes”) on behalf of the Trusts. A dispute
arose when Steppes allegedly failed to make payments on two
promissory notes it had executed in financing the transaction.
When the Trusts sent Steppes a notice of default, Steppes sued
Armstrong, as trustee, in Texas state court, seeking a
declaration that it was not in default on the notes. Armstrong
hired Appellee, the law firm Capshaw, Goss and Bowers, L.L.P.
(“Capshaw Goss”), to represent him in the ensuing litigation.
Armstrong fared disastrously in the Steppes case. By the
2
close of litigation, the parties had been through three different
judges, and Steppes had added and prevailed on a usury claim
against the Trusts for approximately $1,300,000.00. The court
ultimately entered a modified judgment in favor of Steppes
(“Steppes Judgment”).
In May 1997, after his loss in the Steppes case, Armstrong,
as trustee, filed this legal malpractice action against Capshaw
Goss in Texas state court. The case was abated shortly
thereafter, however, because Armstrong’s appeal of the Steppes
Judgment was pending.1
In 1999, Armstrong obtained judgments against himself, in
his capacity as trustee, in Utah state court (“Trust Judgments”).
The Trust Judgments transferred all of the Trusts’ assets and
property, including rights in any litigation, to Armstrong,
individually. That same year, Armstrong dissolved the Trusts
pursuant to their terms.
Armstrong next filed a pro se petition for Chapter 11
bankruptcy in Utah on March 20, 2000, while the instant action
between the Trusts and Capshaw Goss was still pending. The
bankruptcy court appointed Kenneth Rushton as bankruptcy trustee
and confirmed Rushton’s second plan of reorganization on January
31, 2002 (“Confirmation Order”). In the Confirmation Order, the
1
Armstrong was unsuccessful on appeal. See Armstrong v.
Steppes Apartments, Ltd., 57 S.W.3d 37 (Tex. App.——Fort Worth
2001, pet. denied), cert. denied, 536 U.S. 951 (2002).
3
bankruptcy court found that, pursuant to the Trust Judgments,
Armstrong had acquired all of the Trusts’ property and rights in
litigation, including this lawsuit against Capshaw Goss. Hence,
the court found that all of the assets and interests that
formerly belonged to the Trusts were now the 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 stepped in for Armstrong and the Trusts in the
abated Texas action against Capshaw Goss and initiated settlement
negotiations. In February 2002, however, Armstrong intervened in
the case, asserting that he had acquired postbankruptcy petition
interests in the action. Armstrong then filed a notice of
removal based on federal question and diversity jurisdiction.
The lawsuit was removed to the United States District Court for
the Northern District of Texas.
Once in federal court, Capshaw Goss and Rushton objected to
Armstrong’s intervention.2 They asserted that Armstrong had
intervened in the closed state-court case based on rights that
belonged to the bankruptcy estate. Capshaw Goss argued, among
2
These arguments were contained in the joint status report
filed by the parties, at the direction of the district court, on
September 23, 2002.
4
other things, that Armstrong’s complaint in intervention was
insufficient under federal procedural standards. In response,
Armstrong moved to amend his complaint in intervention, which he
had originally filed in state court, to cure “any differences”
between the state and federal intervention requirements.
The district court denied Armstrong’s motion to amend his
complaint in intervention. In so doing, the court treated the
motion to amend as a motion for leave to intervene under Federal
Rule of Civil Procedure 24(a)(2) and found that Armstrong did not
meet the federal requirements 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.
Capshaw Goss and Rushton settled the malpractice claims on
May 1, 2003,3 and the district court dismissed the malpractice
lawsuit with prejudice on September 19, 2003. Armstrong timely
appealed to this court.
II. Analysis
Armstrong raises several issues on appeal, most of which are
3
This settlement was later affirmed by an appellate
bankruptcy panel of the Tenth Circuit. See Armstrong v. Rushton,
Nos. UT-03-059 and 00-26592, 2004 WL 1040693 (B.A.P. 10th Cir.,
May 6, 2004).
5
not properly before this court.4 The only issue raised by
Armstrong that we may review is whether the district court erred
in refusing to allow him to remain as an intervenor in the
removed action.
Armstrong initially disputes the district court’s treatment
of his motion for leave to amend his complaint in intervention as
a motion for leave to intervene. We have frequently instructed
district courts to determine the true nature of a pleading by its
substance, not its label. Edwards v. City of Houston, 78 F.3d
983, 995 (5th Cir. 1996) (en banc) (“[W]e have oft stated that
‘the relief sought, that to be granted, or within the power of
the Court to grant, should be determined by substance, not a
label’”) (quoting Bros. Inc. v. W.E. Grace Mfg. Co., 320 F.2d
594, 606 (5th Cir. 1963)). Because Armstrong’s motion to amend
his complaint sought to justify his status as an intervenor in
federal court, the district court properly treated it as a motion
for leave to intervene. We will likewise construe the district
4
In these extraneous issues, which seemingly arise from
Armstrong’s perception that the courts have treated him unfairly,
Armstrong challenges on numerous grounds the validity of the Utah
bankruptcy court’s orders, the Utah state court’s Trust
Judgments, and the Steppes Judgment. These challenges are
improper either because they constitute impermissible collateral
attacks on valid judgments, or because we lack jurisdiction to
review the underlying judgments. See 28 U.S.C. § 1294(a)(1993)
(“[A]ppeals from reviewable decisions of the district or
territorial courts shall be taken to the courts of appeals as
follows: (1) From a district court of the United States to the
court of appeals for circuit embracing the district[.]”).
6
court’s order denying that motion as a denial of a motion for
leave to intervene.
In further support of his proposed intervention, Armstrong
argues that he was entitled to remain as an intervenor in federal
court because (1) he had already properly intervened in the state
court action, and (2) he met the procedural requirements for
intervention of right under Federal Rule of Civil Procedure
24(a)(2).
We agree with Armstrong’s assertion that his intervention in
the Texas state court action was procedurally correct.
Intervention is relatively easy under Texas law. Texas
procedural rules allow “[a]ny party [to] intervene by filing a
pleading, subject to being stricken out by the court for
sufficient cause on the motion of any party.” TEX. R. CIV. P. 60.
Thus, in Texas state court, anyone is permitted to intervene
unless another party objects and the court agrees with that
objection. Because no party objected in the state court here,
Armstrong was designated as an intervenor and then allowed to
remove the case to federal court.
Once Armstrong removed the lawsuit from state court,
however, the action was governed by federal, rather than state,
procedural rules. Azzopardi v. Ocean Drilling & Exploration Co.,
742 F.2d 890, 895 (5th Cir. 1984). Armstrong was therefore
required to meet federal intervention standards to remain as an
7
intervenor in the removed case.5 Id.; see also Bank One, Tex.,
Nat’l Assoc. v. Elms, 764 F. Supp. 85, 88 (N.D. Tex. 1991) (“In
determining whether [an] intervention should be stricken or
dismissed, the court will be guided by federal law.”).
Accordingly, the district court did not err in reviewing the
propriety of Armstrong’s status as an intervenor under the
federal requirements for intervention.
We turn next to the district court’s conclusion that
Armstrong could not intervene of right under the federal rules.
We review the denial of a motion to intervene of right de novo.
Edwards, 78 F.3d at 995.
To intervene of right under Federal Rule of Civil Procedure
24(a)(2),6 an applicant must meet the following requirements:
(1) the application for intervention must be timely;
(2) the applicant must have an interest relating to the
5
Notably, Armstrong implicitly acknowledged that he was
bound by federal law in his motion for leave to amend his
complaint in intervention, in which he argued that he was
entitled to intervene of right under Federal Rule of Civil
Procedure 24(a).
6
Rule 24(a)(2) provides:
(a) Intervention of Right. Upon timely
application any one shall be permitted to
intervene in an action . . . (2) when the
applicant claims an interest relating to the
subject of the action and the applicant is so
situated that the disposition of the action
may as a practical matter impair or impede the
applicant’s ability to protect that interest,
unless the applicant’s interest is adequately
represented by existing parties.
FED. R. CIV. P. 24(a)(2).
8
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.
Id. at 999 (emphasis added). The district court held that
Armstrong could not intervene under Rule 24(a)(2) because he no
longer possessed any interest, either individually or as trustee,
in the claims against Capshaw Goss. The court explained that
pursuant to the Confirmation Order, all causes of action formerly
belonging to the Trusts, including the malpractice claims
asserted here, were now property of the bankruptcy estate and
wholly controlled by Rushton.
Armstrong argues, however, that he possesses interests in
the malpractice action that are not part of the bankruptcy estate
because they arose after he filed for bankruptcy. First, he
claims that he has an individual interest in the claims because
the Steppes Judgment has continued to affect him since he filed
for bankruptcy. Second, Armstrong claims that he has an interest
in the claims as the Trusts’ beneficiary because he purportedly
acquired beneficial remainder interests from the National Ability
Center after his bankruptcy filing on March 20, 2000.
Armstrong has no interest in the claims against Capshaw Goss
in his individual capacity. 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
9
not give rise to any recognizable legal interest in this
malpractice action. Any individual claims Armstrong may have had
against Capshaw Goss relating to their representation of
Armstrong and the Trusts are now part of the bankruptcy estate,
as they arose before Armstrong filed for bankruptcy.7
Likewise, Armstrong’s argument that he may intervene as a
beneficiary of the Trusts lacks merit for two reasons. First,
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, we are unable to discern
the nature of these purported interests. Neither Armstrong’s
briefing nor the record shed light on what these interests might
be and whether they were ever property of the Trusts.
Second, Armstrong cannot show that any postpetition
interests in the Trusts exist. When he filed his bankruptcy
petition, Armstrong had acquired all of the assets of the Trusts,
including legal rights in litigation, pursuant to the Trust
Judgments. As stated in the Confirmation Order, “any and all
7
In addition, even if Armstrong, individually, could
articulate some cause of action against Capshaw Goss, Texas law
would prohibit his claims for lack of privity. See Poth v.
Small, Craig & Werkenthin, LLP, 967 S.W.2d 511, 514 (Tex.
App.——Austin 1998) (holding that a trust beneficiary lacks
standing to sue an attorney hired by a trustee for malpractice).
But cf. McCamish, Martin, Brown & Loeffler v. F.E. Appling
Interests, 991 S.W.2d 787, 791 (Tex. 1999) (holding that trust
beneficiaries may sue a lawyer for negligent misrepresentations
made to the trust beneficiaries even though no attorney-client
relationship exists).
10
rights to pursue, prosecute, settle or otherwise exercise control
or dominion over . . . litigation involving the Trusts or derived
from rights belonging to the Trusts” became part of the
bankruptcy estate when Armstrong filed his Chapter 11 petition on
March 20, 2000. Armstrong has no postpetition interests in the
Trusts that support his intervention in this lawsuit.
III. CONCLUSION
Based on the foregoing analysis, we AFFIRM the district
court’s judgment.
AFFIRMED.
11