Opinion
Case No. 99-80759-SSM
August 7, 2000
Tina M. McMillan, Esquire, McMillan Lang, P.C., Fairfax, VA, Of Counsel for the debtor
Robert O. Tyler, Esquire, Tyler, Bartl, Burke Gorman, P.L.L.C., Alexandria, VA, for Chapter 7 trustee
MEMORANDUM OPINION AND ORDER
Before the court is a motion filed on June 12, 2000, by the former chapter 7 trustee, Robert O. Tyler, for an order reopening this case in order to administer the debtor's interests in three general partnerships. The trustee asserts that these assets were inadequately disclosed on the schedules, thus preventing him from assessing their value for the benefit of creditors. The debtor maintains that the trustee was adequately put on notice as to the existence of his partnership interests. A hearing was held on July 11, 2000, at which the trustee was present in person and the debtor was present by counsel. The court took the matter under advisement at the conclusion of the hearing. Upon review of the facts and applicable law, the court declines to reopen the bankruptcy case.
Background
Joseph L. Giunta ("the debtor") sought protection under chapter 7 of the Bankruptcy Code in this court on September 2, 1999, and received a discharge on December 22, 1999. On his schedules and statement of financial affairs, the debtor listed an interest in three partnerships named "Aspen Associates General Partnership," "Giunta Associates," and "Giunta Enterprises." With respect to each of the partnerships the debtor placed a value of "unknown" and claimed an exemption of $1.00 under the Virginia homestead exemption. On the statement of financial affairs, the debtor did not specify the addresses, nature of business, and dates of operation of the partnerships in question.
Robert O. Tyler was appointed as trustee. The meeting of creditors took place on October 8, 1999, at which time the trustee questioned the debtor regarding his interests in the partnerships. Although a transcript of the meeting has not been submitted, the trustee recalls that the debtor was unable to provide any details concerning these entities, other than to say that they own real property in Olean, New York. The trustee found this to be unacceptable and requested additional information from debtor's counsel. After communicating with counsel several times and receiving an affidavit from the debtor, the trustee concluded that the debtor's interests in the partnerships probably had no value and were not worth pursuing. The trustee filed a report of no distribution on October 26, 1999, and the case was subsequently closed on December 12, 1999.
In the affidavit, the debtor declares that he has a one-third interest in each of the partnerships, with the remaining interests being held by his siblings, Stephen and Xavier Giunta. He states that he has no documents in his possession that reflect his partnership interests or the value of the partnerships, and that he does not manage their daily affairs. He explains that his sole contact with the partnerships is to receive distributions when they are made, but represents that no distributions have been made by any of the partnerships within the last two years. The debtor's brother, Stephen Giunta, filed a chapter 7 petition in this court on March 7, 1995. By coincidence, the trustee in that case — which resulted in a distribution to creditors — was the law partner of the trustee in this case
Although the trustee takes full responsibility for filing the no-asset report, noting that panel trustees are under pressure from the Office of the United States Trustee to close cases, he explained to the court that he still felt uneasy about the debtor's purported lack of knowledge with respect to the value of his partnerships interests. The trustee did not know what to do about it, but apparently he continued to investigate this matter even after the case was closed. Sometime in May 2000, the trustee contacted a bankruptcy practitioner in Olean, New York, who by coincidence had met with the debtor prior to the filing of the bankruptcy petition. The attorney advised the trustee that the debtor had sought his representation because he thought that he was being cheated by his siblings in connection with the partnerships. Counsel also disclosed to the trustee that the real properties owned by the partnerships are fully rented and generate a positive cash flow. Only after this conversation, the trustee maintains, did he realize that the debtor's partnerships interests were valuable to administer. The present motion to reopen the case was filed weeks later.
Discussion I.
Under § 350(b), Bankruptcy Code, "A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause" (emphasis added). The decision whether to permit a case to be reopened is discretionary with the court. Hawkins v. Landmark Finance Co., 727 F.2d 324 (4th Cir. 1984). As noted, the former chapter 7 trustee seeks to reopen this case to administer, as an asset of the bankruptcy estate, the debtor's interests in three partnerships. The debtor contends, however, that there are no assets for the trustee to administer, because the debtor's interests were adequately listed on his schedules and were therefore irrevocably abandoned when the case was closed.
Under F.R.Bankr.P. 5010, a motion to reopen may be made by "the debtor or other party in interest." The former trustee of a closed case is a "party in interest" with standing to bring a motion under § 350(b). In re Winebrenner, 170 B.R. 878 (Bankr. E.D. Va. 1994) (Shelley, J.).
The commencement of a bankruptcy case creates an "estate" (the bankruptcy estate), which comprises, among other things, "all legal or equitable interests of the debtor in property as of the commencement of the case." It is the debtor's duty to file "a schedule of assets." § 521(1), Bankruptcy Code; F.R.Bankr.P. 1007(b). In a chapter 7 case, the trustee has a duty to "collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interest of parties in interest." § 704(1), Bankruptcy Code. The trustee is not, however, literally required to liquidate each and every non-exempt asset if doing so would provide no benefit to creditors. In particular, the trustee, after notice and a hearing, "may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate." § 554(a), Bankruptcy Code. Additionally, the Bankruptcy Code provides that "any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for the purposes of section 350 of this title." § 554(c), Bankruptcy Code (emphasis added). This is often referred to as "technical abandonment," which is what occurred here when the case was closed subsequent to the trustee's filing of a no distribution report.
Generally, property that is abandoned is no longer part of the bankruptcy estate and is beyond the reach of the trustee. It is well-settled that express abandonment is generally irrevocable. In re Sutton, 10 B.R. 737 (Bankr. E.D. Va. 1981) (Bostetter, J.). This rule is subject, however, to certain exceptions: for example, where property was actively concealed from the trustee, where the trustee's knowledge of the existence of the property "was one of mere suspicion, which engendered only a cursory investigation," and where the property was unscheduled by the debtor. Id. at 740. See In re Avis, No. 95-12007, 1996 WL 910911 (Bankr. E.D. Va. Mar. 12, 1996), where this court found that the bare-bones listing of the debtor's interest as beneficiary of a certain testamentary trust (with a value of "unknown") was not sufficient to put the bankruptcy trustee on notice of the debtor's potential right to distributions resulting from the exercise of a power of appointment.
There is no question that a trustee can withdraw a report of no distribution prior to the closing of the case. See In re Mendelsohn, 241 B.R. 503, 506 (E.D. N.Y. 1997) ("The filing of a Report of No Distribution is insufficient proof of conscious abandonment of an asset"). Section 554(c) provides that the debtor's property continues to be property of the bankruptcy estate until the case is closed. The question here is under what circumstances, if any, could the trustee reopen the case in order to administer property that was technically abandoned. Courts have taken varying approaches to this issue. See In re Woods, 173 F.3d 770, 776-77 (10th Cir. 1999) (discussing the different approached adopted by the courts). Having reviewed the cases, the court sees no reason to deviate from the principals set forth in Sutton even though it involved express rather than technical abandonment.
As noted in Woods, some courts have held that a court has broad power to modify or revoke a technical abandonment. See, e.g. Neville v. Harris, 192 B.R. 825, 832 (D. N.J. 1996). Another line of cases take the view that the reopening of the case automatically negates any technical abandonment. See, e.g., Compass Bank for Savings v. Billingham (In re Graves), 212 B.R. 692, 695-96 (1 Cir. BAP 1997). Finally, other courts have held that the technical abandonment of property, like express abandonment, is simply irrevocable. See, e.g. Huntington Nat'l Bank v. Hunter (In re Hunter), 76 B.R. 117, 118-20 (Bankr. S.D. Ohio 1987).
II.
The exception relied upon the trustee is that the debtor did not adequately disclose his partnership interests, thereby causing the trustee prematurely to file the no distribution report. The trustee contends that the debtor listed only the names of the partnerships on the schedules, and nothing more. Furthermore, implicit in the trustee's position is that the debtor misrepresented the value of his interests by failing to specify a dollar amount with respect to each interest. The debtor counters that the disclosure of his assets was adequate to put the trustee on notice to further investigate the value of the partnerships. The trustee, the debtor argues, could have hired a professional to review the real properties owned by the partnerships.
As the trustee correctly points out, only property that is adequately disclosed on the schedules can be abandoned. Conversely,
Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.
§ 554(d), Bankruptcy Code. A leading treatise explains abandonment as follows:
Abandonment presupposes knowledge. There can, as a rule, therefore be no abandonment by mere operation of law of property that was not listed in the debtor's schedules or otherwise disclosed to creditors. . . .[U]nless the court orders otherwise, property of the estate that is neither abandoned nor administered in the case remains property of the estate. *** If the property is later discovered and is valuable the court may reopen the case[.]
5 Lawrence P. King, Collier on Bankruptcy, f 554.03, p. 554-12-13 (1995) (15th ed. Rev. 2000) (emphasis added) (footnotes omitted). As in analogous context of claiming exemptions, the debtor who seeks the benefit of abandonment with respect to scheduled property must describe that property in reasonable detail. Cf. Addison v. Reavis, 158 B.R. 53, 59 (E.D.Va. 1993) (Doumar, J.), aff'd sub nom. Ainslie v. Grablowsky (In re Grablowsky), 32 F.3d 562, 1994 WL 410995 (4th Cir. 1994) (unpublished disposition) (debtors' assignment of only nominal amounts-in one case $1.00 and in the other case $10.00-to partnership interests on schedules resulted in exemption only of the precise amount claimed and not the entire asset); Payne v. Wood (In re Payne), 775 F.2d 202 (7th Cir. 1985) ("[U]nless the claim of exemption contains sufficient detail to put the trustee on notice of questionable assertions, it will not be possible to administer the statutory scheme. . . . The debtor must furnish enough information to put the trustee on notice of the wisdom of further inquiry. . . .[I]t is the debtor's burden to make out the claim of exemption with adequate specificity.").
Thus, the crux of this matter is whether the debtor's interests in the partnerships were scheduled in such a way as to make the trustee aware of their true nature and to enable him to conduct a reasonable inquiry. See In re Shelton, 201 B.R. 147 (Bankr. E.D. Va. 1996) (noting that the trustee must be afforded the ability to make an informed decision). Here, the trustee cannot escape the fact that the specific names of the general partnerships were disclosed on the schedules. It is true that the debtor failed to list the addresses, as required by the statement of financial affairs, of the partnerships or the properties owned by them. While this made the trustee's task of assessing the debtor's interests more difficult, it did not prevent him from investigating the whereabouts of these partnerships and their respective assets. Moreover, the fact that the partnerships were listed as having an unknown value should have, and in fact did, raise red flags to the trustee. In any event, the trustee conducted at least a cursory investigation into these assets and chose to accept the debtor's affidavit and counsel's representations that the debtor had no knowledge with respect to his partnership interests. For whatever reason, the trustee had a gut feeling that something was not right and believed there might be value in these partnerships, but the court cannot ignore the reality, which the trustee accepts, that he knowingly filed a report of no distribution and never retracted it before the case was closed. If the trustee had any doubts, the no-asset report should not have been filed and a further investigation should have been conducted until the trustee's concerns were put to rest. It is unclear, for example, why the trustee was unable to contact the debtor's siblings who managed the partnerships. The court is aware of the pressure placed on trustees to close chapter 7 cases in an expeditious manner. However, mere pressure to close cases is not a sufficient basis to grant relief from the abandonment that occurred as a matter of law upon the closing of the case.
In the context of revoking a technical abandonment, there is case law that recognizes the exception of mistake and inadvertence. See DeVore v. Marshack (In re DeVore), 223 B.R. 193, 198 (9th Cir. BAP 1998). However, such cases do not involve situations where the trustee intentionally determined to file a no-asset report. See, e.g., Mendelsohn, 241 B.R. at 505 (reopening the case because a no-asset report was inadvertently filed while the trustee was attempting to settle a personal injury action).
This is simply a situation in which a trustee discovers, after the fact, that abandoned assets were actually worth more than he originally thought. It appears well-settled, however, that abandonment, if it does occur, "is irrevocable, regardless of any subsequent discovery that the property had greater value than previously believed." 5 Collier on Bankruptcy, supra, ¶ 554.02, p. 554-8. In re Sutton, 10 B.R. 737 (Bankr. E.D. Va. 1981) (Bostetter, J.); In re Hood, 92 B.R. 648, 655-6 (Bankr. E.D. Va. 1988) (Tice), aff'd 92 B.R. 656 (E.D.Va. 1988) ("Property abandoned pursuant to Section 554 generally cannot be recovered by the debtor's estate not withstanding a later determination of value which might have benefitted the estate."); but see, Indian Head Nat'l Bank v. Dominic (In re Dominic), 29 B.R. 482 (Bankr. M.D. Fla. 1983) (distinguishing Sutton because the trustee in Dominic "disclaimed" rather than "abandoned" two parcels of real estate).
Conclusion
The court, accordingly, has little choice except to conclude that the trustee has not demonstrated "cause" to warrant the reopening of the case. The existence of the debtor's partnership interests was adequately, if sketchily, disclosed on the schedules, thus putting the trustee on notice to conduct an investigation as to their value. As a result, they were abandoned to the debtor when the case was closed and are now beyond the reach of the trustee. Accordingly, reopening of the case would provide no relief.
It is worth emphasizing that no actual evidence has been presented at this point that any statement made in the debtor's affidavit or at the meeting of creditors was false. It may very well be that the affidavit was artfully drawn so that, while literally true so far as it went, it omitted important facts and was therefore misleading. But at this point, the court has no evidence even of that. Of course, if evidence exists or comes to light that the debtor lied in his affidavit or in his representations to the trustee, he is subject to criminal prosecution. See, e.g., 18 U.S.C. § 157. Indeed, a trustee having reasonable grounds to believe that a bankruptcy crime has been committed is obligated to make a report to the United States Attorney. 18 U.S.C. § 3057.
A separate order will be entered consistent with this opinion.