Posted by Kathy Bazoian Phelps
In Ponzi scheme cases, the issue of trustee standing to bring third party claims can be very challenging. The Supreme Court has made clear that a trustee may pursue the debtor’s claims against third party defendants, but may not pursue creditors’ claims. Caplin v. Marine Midland Grace Trust Co. of N.Y., 406 U.S. 416 (1972). What makes the issue so challenging in Ponzi scheme cases is determining which claims belong to creditors and which belong to the debtor. Does the defrauded victim hold a claim for a particularized injury, or does the trustee hold the claim belonging to the debtor for generalized injury to the debtor as claims are filed against a debtor for victims’ losses in a Ponzi scheme?
To avoid being thrown out of court on standing issues, trustees and their attorneys often employ a belt and suspenders approach to litigation. Trustees obtain assignments from creditors of their claims so the trustee then owns all possible claims and will be covered under either scenario. The theory is that, after the assignment, Caplin no longer applies because the trustee is pursuing claims that the estate owns, not the creditors’ claims. Pursuant to 11 U.S.C. § 541(a)(7), the estate includes, “Any interest in property that the estate acquires after the commencement of the case.”