[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 03-15932
December 02, 2004
________________________
THOMAS K. KAHN
CLERK
D. C. Docket No. 02-00433-CV-4-DF-5
BKCY No. 01-55662 BKC-JD
ICARUS HOLDING, LLC,
a.k.a. Piedmont Hardwood Flooring, LLC.,
Debtor.
____________________________________________________________
BAILLIE LUMBER COMPANY, LP,
Plaintiff-Appellant,
versus
BERT F. THOMPSON,
ICARUS HOLDING, LLC,
f.k.a. Piedmont Hardwood Flooring, LLC.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Middle District of Georgia
_________________________
(December 2, 2004)
Before BIRCH, BARKETT and COX, Circuit Judges.
BIRCH, Circuit Judge:
CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT TO THE SUPREME COURT OF GEORGIA,
PURSUANT TO O.C.G.A. § 15-2-9. TO THE SUPREME COURT OF
GEORGIA AND ITS HONORABLE JUSTICES:
In this case we must determine if a corporate entity in bankruptcy has
exclusive standing to bring a state alter ego action against its principal. Baillie
Lumber Company (“Baillie Lumber”) appeals the order of the district court
granting summary judgment in favor of Bert F. Thompson (“Thompson”) and
Icarus Holdings, LLC (“Icarus”)1 as to Georgia alter ego claims against Thompson.
The district court approved the bankruptcy court’s decision that held an alter ego
claim is property of the debtor’s bankruptcy estate under Georgia law, and
therefore, the debtor has exclusive standing to bring such a claim. Because it is
unclear under Georgia law whether a corporate entity can bring an alter ego action
against its former principal, we certify the question to the Supreme Court of
Georgia for review. Question CERTIFIED.
I. BACKGROUND
The facts of this case are undisputed. Icarus is a national manufacturer and
1
Formerly known as Piedmont Hardwood Flooring, LLC.
2
distributer of hardwood flooring. Before 17 December 2001, Baillie Lumber sold
lumber to Icarus and was never paid. On 17 December 2001, Icarus filed for
Chapter 11 bankruptcy. Prior to that date, Thompson, Icarus’s primary member
and president, engaged in certain financial irregularities that harmed Icarus’s
liquidity. These irregularities included the use of Icarus’s assest and resources to
make improvements on Thompson’s hunting lodge, and the use of Icarus’s assets
to fund Thompson’s separate company, Southern Wood Services, LLC. At the
time of this suit Thompson was no longer involved in the management of Icarus.
On 28 December 2001, Icarus filed a complaint against Thompson in
bankruptcy court claiming that the irregularities were fraudulent transfers and were
held in constructive trust for Icarus. On 8 January 2002, Baillie Lumber filed suit
against Thompson in a Georgia state court alleging Thomson is the alter ego of
Icarus and thus personally liable for the debts owed to Baillie Lumber. Baillie
argues that the state alter ego claim is not the property of Icarus’s estate, and that it
is not trying to recover money owed to the estate. Thus, Baillie contends that
Icarus and the Official Committee of Unsecured Creditors of Icarus
(“Committee”) 2 have no authority to settle the alter ego claim against Thompson.
Meanwhile, Icarus and the Committee began negotiations with Thompson to
2
Baillie Lumber is a member of this committee.
3
settle, among other things, any alter ego suit they may have against Thompson. On
17 April 2002, Thompson brought this suit requesting injunctive relief because the
alter ego claim is property of Icarus’s estate. A week later, Icarus also joined in
this suit as a third party plaintiff.
On 10 October 2002, the bankruptcy court issued an order holding that
Georgia law makes the alter ego claim the property of Icarus’s estate, and,
therefore, Icarus has the exclusive right to bring an alter ego claim against
Thompson. Further, it held that the separate alter ego suit brought by Baillie
Lumber would be subject to an automatic stay. On appeal to the district court, the
decision of the bankruptcy court was upheld.
Baillie Lumber now appeals to this court arguing that its alter ego claim
against a third party, in this case Thompson, was separate property. Specifically,
Baillie Lumber argues that under 11 U.S.C. § 541 a bankruptcy estate includes
only property that the debtor possessed at the time of the bankruptcy filing, and
here, Baillie Lumber claims the Georgia alter ego claim against Thompson is its
own separate property.
II. DISCUSSION
The bankruptcy court and district court granted summary judgment by
interpreting Georgia law to allow a corporation’s alter ego suit against its former
4
principal, thus making any such claims property of the bankruptcy estate, 11
U.S.C. § 541, and any similar claims by creditors subject to an automatic stay, 11
U.S.C. § 362. We review the district court’s interpretation of law and
determination of estate property de novo. See In re Witko, 374 F.3d 1040, 1042
(11th Cir. 2004). Because standing to assert the alter ego claim is a question of
state law in this case, we must review the district court’s decision in accordance
with Georgia law. See Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817 (1938).
Where there is doubt in the interpretation of state law however, “a federal court
should certify the question to the state supreme court to avoid making unnecessary
Erie ‘guesses’ and to offer the state court the opportunity to interpret or change
existing law.” CSX Transp., Inc. v. City of Garden City, 325 F.3d 1236, 1239
(11th Cir. 2003) (citations omitted).
In order to stay Baillie Lumber’s separate alter ego action against
Thompson, Icarus3 must have standing to bring its own alter ego action under 11
U.S.C. § 541 or 11 U.S.C. § 544. Generally, courts that allow the trustee or debtor-
in-possession to bring an exclusive alter ego action do so under section 541. See,
e.g., St. Paul Fire & Marine Ins. Co. v. Pepsico, Inc., 884 F.2d 688, 700-05 (2d Cir.
1989); Koch Refining v. Farmers Union Cent. Exch., Inc., 831 F.2d 1339, 1343-47
3
A trustee was not appointed in this case, but Icarus, the debtor-in-possession, plays
essentially the same role for purposes of bankruptcy law. 11 U.S.C. § 1107(a).
5
(7th Cir. 1987) (“Koch”); In re S.I. Acquisition, 817 F.2d 1142, 1153 (5th Cir.
1987); In re City Communications, Ltd., 105 B.R. 1018, 1020 (Bankr. N.D. Ga.
1989).4
A. Section 541
Section 541 establishes a debtor’s bankruptcy estate and includes “all legal
and equitable interests of the debtor in property as of the commencement of the
case.” 11 U.S.C. § 541(a). This includes legal causes of action the debtor had
against others at the commencement of the bankruptcy case. See Koch, 831 F.2d at
1343-44; In re Adam Furniture Indus., Inc., 191 B.R. 249, 255 (Bankr. S.D. Ga.
1996) (“Adam Furniture”). If such causes of action, including alter ego actions,
are property of the estate under section 541(a), any similar extraneous lawsuits
brought by individual creditors will be subject to the automatic stay provision of 11
4
While other circuits have recognized that section 544 may be an alternative grounds for
trustees and debtor corporations to assert exclusive alter ego claims as representatives of all
creditors, see, e.g., Koch, 831 F. 2d 1339, 1342-43 (7th Cir. 1987), we believe this approach,
though not dispositive here, is tenuous at best. Our decision in E.F. Hutton & Co. v. Hadley,
casts serious doubt on the use of section 544 to bring alter ego actions. 901 F.2d 979, 985-86
(11th Cir. 1990). The purpose of section 544 is to give a trustee the power of a hypothetical lien
creditor to avoid transfers of and liens on the debtor’s property when the trustee cannot prevent
them under other sections of the bankruptcy code. See 11 U.S.C. § 544; In re Ozark Rest. Equip.
Co., 816 F.2d 1222, 1229-30 (8th Cir. 1987) (“Ozark”). Many courts have completely rejected
544's use as a means for debtor corporations to bring alter ego actions. See, e.g., id. at 1230; see
also Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991) (interpreting
Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 434, 92 S. Ct. 1678 (1972) to say that
“a bankruptcy trustee has no standing generally to sue third parties on behalf of the estate’s
creditors, but may only assert claims held by the bankrupt corporation itself.”); City
Communications, 105 B.R. at 1021 (interpreting Caplin and subsequent congressional history to
mean section 544 is not an alternative for alter ego claims).
6
U.S.C. § 362(a)(3).5 See S.I. Acquisition, 817 F.2d at 1153. We must, therefore,
look to Georgia law to determine whether Icarus is allowed to bring an alter ego
action against its former principal, therefore making it property of the bankruptcy
estate and Baillie Lumber’s separate state action subject to the automatic stay.
Although several circuits have examined this same issue, not all circuits
have arrived at the same result. Before allowing a debtor-in-possesion or trustee to
bring an alter ego action on behalf of the corporation, most courts require that (1)
the alter ego claim be a general claim that applies equally to all creditors, and (2)
state law allows the corporate entity to bring an alter ego action against its
principal. See St. Paul Fire & Marine Ins., 884 F.2d at 703-04 (interpreting state
law to allow corporations to bring alter ego actions against a parent because it
prevents injustice and allowing third party creditors to only bring personal and not
general alter ego type claims); Koch, 831 F.2d at 1345-46.
In Koch for example, oil company creditors asserted their right to bring a
separate alter ego action against a debtor corporation. The Seventh Circuit
concluded that Illinois and Indiana law allowed a trustee in bankruptcy to bring an
alter ego action on behalf of the debtor corporation, and therefore, the trustee had
5
A bankruptcy petition “operates as a[n] [automatic] stay applicable to all entities, of . . .
any act to obtain possession of property of the estate or of property from the estate.” 11 U.S.C. §
362(a)(3).
7
the exclusive right to bring an alter ego claim. See id. at 1346. The court reasoned
that both Indiana and Illinois alter ego law was based on a doctrine that imposed
liability to reach an equitable result, and, therefore, could allow a trustee to bring
an alter ego suit against the principal if equity so required.6 See id. The Koch
court noted, however, that the trustee would only be able to bring general claims
that are common to all creditors of the debtor corporation, and could not avoid the
personal claims of creditors that are unique to that creditor. See id. at 1348-49. In
Koch, the court concluded that the oil company’s claims were general to all
creditors and only affected the debtor corporation directly and the oil companies
indirectly. Id. at 1349. Thus, the trustee in Koch could bring an exclusive alter
ego action when the claims were common to all creditors and state law allowed a
corporation to sue its principal.
In a subsequent opinion, the Seventh Circuit prevented a trustee from
bringing an alter ego action because the claim was personal to the individual
creditor and not general. See Steinberg v. Buczynski, 40 F.3d 890, 893 (7th Cir.
1994). In Steinberg, the bankruptcy trustee brought an alter ego suit against the
6
The Illinois Supreme Court later rejected this interpretation of Illinois law, stating that
Illinois alter ego law does not allow a subsidiary to bring an alter ego claim against its parent
because to do so would torture the notion that alter ego claims are tools for creditors only and
not corporations. See In re Rehab. of Centaur Ins. Co., 632 N.E.2d 1015, 1019 (Ill. 1994). The
court noted that allowing a corporation to pierce its own veil would effectively deny the
corporation of its own existence. See id. at 1018 (quoting In re Dakota Drilling, Inc., 135 B.R.
878, 884 (Bankr. D.N.D. 1991)).
8
debtor corporation’s primary shareholders in an attempt to obtain money not paid
to an employee pension fund. See id. at 891. The court found no evidence that the
shareholders directly harmed the corporation itself by taking unreasonably high
salaries or “looting” the corporate assets. Id. at 892. Only the pension fund was
harmed directly. See id. Thus, the court held that an alter ego claim by the
corporation itself would be improper because the injury was to the pension fund
and not the corporation and creditors in general.7
On the other hand, the Eighth Circuit has interpreted Arkansas law to not
allow alter ego actions by the corporation itself. Ozark, 816 F.2d at 1225. In
Ozark, Arkansas law allowed veil piercing when “the corporate structure is
illegally or fraudulently abused to the detriment of a third person.” Id. (citations
omitted). The court concluded that this language means that a veil-piercing action
brought against a corporation is personal to the creditors themselves and cannot be
brought by the corporation. See id. Thus, the veil piercing or alter ego claim is not
property of the bankruptcy estate for the trustee to administer. See id.
Like many courts that have addressed this issue, we hold that in order to
bring an exclusive alter ego action under section 541, a bankruptcy trustee’s claim
7
Steinberg compares this claim to a hypothetical tort claim, where the neighbor of the
debtor corporation’s principal is injured on the principal’s property. The action brought by the
neighbor in that case would be personal to the neighbor and not the sort of general claim a
bankruptcy trustee could take. Steinberg, 40 F.3d at 892.
9
should (1) be a general claim that is common to all creditors and (2) be allowed by
state law. See In re iPCS, Inc., 297 B.R. 283, 297 (Bankr. N.D. Ga. 2003). In this
action, we find that Baillie Lumber asserts only a general cause of action and no
personal damages that are unique to them. Baillie Lumber’s claim would be
personal if Baillie Lumber itself was “harmed and no other . . . creditor has an
interest in the cause.” Koch, 831 F.2d at 1348. The claim is a general one when
liability extends “to all creditors of the corporation without regard to the personal
dealings between such officers and such creditors.” Id. at 1349. Here, the
assertion is that Thompson blurred the line between himself and the corporation by
taking assets of the corporation and using them to his own personal ends. Unlike
the Steinberg shareholders, Thompson did “loot” the corporate assets. An alter ego
action under these circumstances could be brought by all creditors of Icarus.
Baillie Lumber has shown no unique or personal harm aside from the fact that each
creditor would demand a different amount in compensation. By misappropriating
corporate assets, Thomson caused direct harm to the corporation and only indirect
harm to Baillie Lumber. Thus, this action meets our first factor. However, it is
unclear whether Georgia law allows a corporation to bring an alter ego action
against itself.
B. Georgia Alter Ego Law
10
There is no Georgia law that directly addresses whether a trustee for a debtor
corporation in bankruptcy can bring an alter ego action against the corporation’s
former principal. In Georgia, alter ego and veil-piercing actions are based on
equitable principals. Acree v. McMahan, 585 S.E.2d 873, 882 (Ga. 2003).
Georgia courts allow alter ego actions “to remedy injustices which arise where a
party has overextended his privilege in the use of a corporate entity in order to
defeat justice, perpetrate fraud or evade contractual or tort responsibility.” Paul v.
Destito, 550 S.E.2d 739, 747 (Ga. App. 2001) (citations omitted). The Georgia
Supreme Court in past decisions, however, has noted that it “has been reluctant to
disregard the corporate entity except where third parties were involved in dealing
with the corporation and director or shareholder liability was in question, or where
public policy might require looking beyond the corporate structure in the public
interest.” Pickett v. Paine, 199 S.E.2d 223, 227 (Ga. 1973).8 In Pickett, the court
refused to pierce the corporate veil for the benefit of a minority shareholder’s suit
against the majority shareholder. Id. at 228. The Georgia Court of Appeals,
however, has rejected the proposition that Georgia law per se “prohibits a director,
officer, or shareholder from piercing the corporate veil.” Paul, 550 S.E.2d at 747;
see also Cheney v. Moore, 387 S.E.2d 575, 576-77 (Ga. App. 1989) (holding that a
8
It is unclear whether public policy in the second part of this statement would allow a
corporation to bring an alter ego suit against a principal.
11
50 percent shareholder can pierce the corporate veil). Thus, as far as we can
determine there is no clear demarcation in Georgia law that allows us to say an
alter ego action is property of the bankruptcy estate.
The only courts in Georgia to address this issue directly are the federal
bankruptcy courts, but they are divided on whether Georgia law allows a
corporation to bring this type of alter ego action. Compare Adam Furniture, 191 B.
R. at 255 (considering the corporation’s alter ego claim as property of the estate
under Georgia law), and City Communications, 105 B.R. at 1022 (interpreting
Georgia law to allow corporations to bring alter ego claims), with In re Mattress N
More, 231 B.R. 104, 109 (Bankr. N.D. Ga. 1998) (holding that Georgia law does
not allow a corporation to bring alter ego actions). In the first case to consider the
question, the City Communications court compared the Koch and Ozark cases and
determined that, like the Koch court, Georgia alter ego law would allow a debtor
corporation to bring general alter ego claims in bankruptcy because Georgia law
was founded on equity concerns. See City Communications, 105 B.R. at 1022.9
The Adam Furniture court subsequently followed the same reasoning and
9
The bankruptcy court did note that, traditionally, alter ego actions are asserted by only
creditors and not the corporation. See City Communications, 105 B.R. at 1022. The court,
however, explained that state law makes it unlikely for a corporation to bring an alter ego action
outside of bankruptcy because that would normally require the officers and directors to sue
themselves. See id. Bankruptcy policy on the other hand has “different motives and policies
underlying the development of their equitable remedies. . . .” and therefore makes “the logical
and proper party to pursue [an alter ego] claim . . . the trustee.” Id.
12
determined Georgia law allowed a corporation’s alter ego suit for equity reasons.
191 B.R. at 255.
The Mattress N More court, on the other hand, rejected the reasoning of both
City Communications and Adam Furniture to hold that Georgia law will not allow
a corporation’s alter ego suit. The court reasoned that although it might make
sense for a trustee to have exclusive possession of an alter ego action, there was no
basis in Georgia or bankruptcy law for such a result. See Mattress N More, 231
B.R. at 109-10. The court was troubled that a corporate entity created to shield
shareholders from liability would itself assert a claim to destroy that protection. Id.
at 109. Further, the court determined that it was “relatively difficult to pierce the
corporate veil in Georgia.” Id. Thus as the court explained, the issue is ripe for
certification to the Georgia Supreme Court. Id. at 109 n.3. Considering the split
between Georgia bankruptcy courts and the uncertain state of Georgia alter ego
law, we choose to certify the following question to the Georgia Supreme Court:
1. WILL GEORGIA LAW ALLOW THE REPRESENTATIVE OF A
DEBTOR CORPORATION TO BRING AN ALTER EGO CLAIM
AGAINST THE CORPORATION’S FORMER PRINCIPAL?
13
2. IF SO, WHAT IS THE MEASURE OF RECOVERY?
III. CONCLUSION
This appeal comes after the bankruptcy and district courts interpreted
Georgia law to allow a corporation to bring an alter ego suit, therefore making such
a suit property of the bankruptcy estate under 11 U.S.C. § 541. Because we find
Georgia law is not clear in regard to this issue we have certified the question
above. Our particular phrasing of this question is not intended to limit the inquiry
of the Supreme Court. Neither is our recital of the parties' arguments intended to
substitute for the full statement of contentions by the parties. The Supreme Court
is at liberty to consider the problems and issues involved in this case as it perceives
them to be. To assist in its consideration of this question, the entire record, along
with the briefs of the parties, will be transmitted to the Supreme Court of Georgia.
Until the Supreme Court responds to our certified question, all relevant
proceedings in this appeal are STAYED.
QUESTION CERTIFIED.
14