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Shepard Johnson v. Chester Mitchell

April 22, 2011


The opinion of the court was delivered by: Gregory G. Hollows United States Magistrate Judge


Previously pending on this court's law and motion calendar for February 3, 2011, were bankruptcy trustee J. Michael Hopper's motions to intervene and to dismiss, filed January 4, 2011. J. Michael Hopper appeared and was represented by J. Russell Cunningham and J. Luke Hendrix. Plaintiff appeared in pro se. After hearing oral argument, reviewing the papers, and receiving supplemental briefing, the court now issues the following findings and recommendations.


Plaintiff initiated this action for malicious prosecution on July 23, 2010, and is proceeding with the first amended complaint, filed October 28, 2010. Plaintiff is a real estate developer who claims that defendants purchased lots for a planned unit development on an island in Panama. Plaintiff alleges that defendants did not want to be subject to CC&Rs for the development and so rather than settling the matter by way of a contract dispute, plaintiff claims that defendants interfered with the development and plaintiff's livelihood by spreading deliberate falsehoods, engaging in "wrongful conduct" to intimidate him, destroying his reputation and business, disrupting relations with other lot owners, and discouraging prospective purchasers. They also initiated criminal proceedings against him in the Panama courts which were later dismissed, and which are the subject of plaintiff's malicious prosecution and conspiracy claims. The complaint is based on diversity.

Trustee J. Michael Hopper seeks to intervene, claiming that this action is property of plaintiff's bankruptcy estate because it is sufficiently rooted in the pre-bankruptcy past. According to the Trustee, most of the acts by the lot owners, which are the subject of the malicious prosecution claims, took place beginning in 2004. The alleged defamatory remarks began in 2004; the criminal investigations were initiated in 2005; plaintiff filed bankruptcy on July 3, 2007, purportedly as a result of all these other actions; and plaintiff claims the criminal charges in Panama were dismissed in 2008. Plaintiff's contention is that he had no cause of action for malicious prosecution until the Panamanian criminal cases were terminated in his favor, in 2009 and 2010, after his case was converted from a Chapter 11 to a Chapter 7 case on November 4, 2008.

The underlying dispute, according to the Trustee, is that certain lot owners, including defendants Miner and Hermansen ("claimants"), claim that they purchased lots on Isla Solarte, Panama, in the mid-1990s with the belief that plaintiff would provide the promised infrastructure for developing a first class tropical resort on the land, but there had been no progress on the infrastructure. They claim they were not subject to CC&Rs because they purchased their lots prior to the promulgation of any such CC&Rs. Plaintiff instead demanded that they sign a new purchase agreement and accept CC&Rs chosen by him at the time he was preparing to transfer title to claimants' lots. Trustee states that he has reached an agreement with lot owners who would bear the financial burden of completing development of the infrastructure in return for a fixed return. The Bankruptcy Court has approved that agreement.

There is a long procedural history to the bankruptcy case, but it is significant that the Bankruptcy Court on April 24, 2009, granted the estate's motion to dismiss Adversary Proceeding #09-02149 on the ground that plaintiff's claims against Cayo del Sol ("CDS") are property of the estate. After no appeal was taken, the dismissal order became final. The adversary proceeding had been intended to thwart a pending compromise between the bankruptcy estate, CDS and certain pre-petition purchasers of portions of the Panama property, including some of the defendants. On June 5, 2009, the Bankruptcy Court granted a motion to approve a compromise with CDS. The BAP denied plaintiff's appeal. The Trustee admits that it released all claims against defendants Miner and Hermansen in this action by this compromise. The Trustee claims, however, that he did not release any claims against the remaining defendants in this action: Chester and Catherine Mitchell, Kahler, Thomas, Lynch, and Tornga. The Trustee is attempting to intervene apparently to assist in resolving underlying disputes with the remaining defendants, i.e., a resolution of this action may help in resolving the underlying dispute. When the Trustee informed plaintiff in August, 2010, that he would oppose plaintiff's prosecution of any claim that is property of the estate, plaintiff did not disclose this action which had already been filed.


I. Motion to Intervene

Trustee Hopper seeks to intervene as a matter of right and in the alternative to intervene permissively.

A right to intervene into an existing civil action is governed by Federal Rule of Civil Procedure 24(a):

(a) Intervention of Right. On timely motion, the court must permit anyone to intervene who: ....

(2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.

Fed. R. Civ. P. 24(a).

One seeking intervention as of right must adequately demonstrate the existence of four separate requirements:

(1) the application must be timely; (2) the applicant must have a 'significantly protectable' interest relating to the transaction that is the subject of the litigation; (3) the applicant must be so situated that the disposition of the action may, as a practical matter, impair or impede the applicant's ability to protect its interest; and (4) the applicant's interest must be inadequately represented by the parties before the court.

League of United Latin American Citizens v. Wilson, 131 F.3d. 1297, 1302 (9th Cir.1997). The four part test is interpreted broadly in favor of intervention.

As the malicious prosecution claim may potentially be property of the estate, the trustee has an interest in intervening "by virtue of his duty under the Bankruptcy Code to 'be accountable for all property received' in the bankruptcy estate." Citibank v. Park-Kenilworth Industries, Inc., 109 B.R. 321, 323 (1989).

This action was filed on July 23, 2010. Summons returns were filed in November, 2010, and defaults were entered against all defendants except Tornga on December 28, 2010. Some of the defendants have moved to set aside entry of default, and those matters will be addressed after the instant motions are determined. Therefore, the application is timely. Johnson's argument that the parties have been aware of his malicious prosecution claim ...

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