Opinion
No. A00-34 CIV (JWS)
June 7, 2000.
On Appeal from U.S. Bankruptcy Court District of Alaska, No. A-91-01050-DMD, Honorable Donald MacDonald, IV.
I. MOTIONS PRESENTED
At docket 5, Thomas and Sonja Redmond ("appellants") appeal a decision of the bankruptcy court. See 6 ABR 306 (2000). Appellee William Barstow ("U.S. Trustee") opposes, and appellants respond. Oral argument was heard on June 6, 2000.
All references are to docket entries in the record of the bankruptcy court.
Appellants, husband and wife, are commercial fishermen. They are also parties to class action lawsuits filed against the Exxon Corporation ("Exxon") immediately after the 1989 Exxon Valdez oilspill. A federal judgment totaling five billion dollars was entered against Exxon, but that judgment is now on appeal and, as yet, none of the proceeds have been distributed. Appellants also have four claims against the Trans-Alaska Pipeline Liability Fund ("TAPLF") arising from the oil spill.
TAPLF is a creation of the Trans-Alaska Pipeline Act, 43 U.S.C. § 1651-1655. TAPLF provides liability coverage for individuals damaged by activities "along or in the vicinity of" the trans-Alaska pipeline as well as from discharges from vessels carrying oil that had been carried through the pipeline. 43 U.S.C. § 1653. Damage payments for injuries caused by discharges from vessels are awarded on a strict liability basis and are limited to 100 million dollars per incident. 43 U.S.C. § 1653(c).
Appellants filed a chapter 7 bankruptcy petition with the United States Bankruptcy Court on December 27, 1991. The bankruptcy court appointed William Dudley as trustee shortly thereafter. On January 10, 1992, appellants filed a schedule of assets (Schedule B) in which they listed the four TAPLF claims. Three of these claims, 001308-01, 001308-02, and 001308-03, belonged appellant Thomas Redmond. The schedule describes those claims as follows:
Arise out of 1989 Exxon Valdez oil spill; claims filed by Faegre Benson of Minneapolis, Minnesota; based on loss of income as Commercial Fisherman during 1989 season.
Bankruptcy docket 12, Schedule B at 5.
The fourth claim, 004584-01, belonged to appellant Sonja Redmond. The schedule describes this claim as follows:
Claim arises out of 1989 Exxon Valdez oilspill [sic]; based on lost income during 1989 season as crew member.
Id., Schedule B at 5.
Appellants did not schedule their potential interests in the class action claims against Exxon. The bankruptcy trustee filed a report of no assets on April 3, 1992, and the bankruptcy court discharged appellants' debts on April 9, 1992. The bankruptcy case closed on April 23, 1992.
On March 15, 1999, the U.S. Trustee moved to reopen appellants' case to administer the potential settlement proceeds from the Exxon class action judgment. The bankruptcy court reopened the case two days later. On August 19, 1999, appellants moved to close the case. Appellants argued that the Exxon claims were abandoned pursuant to 11 U.S.C. § 554(c) when the case closed in 1992. U.S. Trustee opposed the motion and moved to revoke any abandonment of the Exxon claims. The bankruptcy court denied both motions by an order dated January 4, 2000. This appeal followed.
III. DISCUSSION
A. Jurisdiction and Standard of Review
The district courts are authorized to hear appeals of (1) all decisions, judgments, and orders from the bankruptcy court that are final, (2) interlocutory orders and decrees issued under 11 U.S.C. § 1121(d), and (3) other interlocutory orders and decrees with leave of the bankruptcy court. The parties contend that the bankruptcy court's order denying appellants' motion to close, though not a "final" order in the sense that it ends the litigation, is appealable as a "final" order under the Ninth Circuit's interpretation of that term. The court agrees.
The Ninth Circuit takes a "pragmatic" approach in determining whether an order of the bankruptcy court is final such that it may be appealed. The circuit's approach focuses on the parties' need for immediate review rather than on the "conventional" definition of a final order. The bankruptcy court concluded that appellants' Exxon claims were not abandoned when the bankruptcy estate closed. This decision did not end the bankruptcy case but allowed it to continue — there are now assets in the estate for the trustee to administer. If the bankruptcy court had concluded otherwise, the opposite would be true — there would be no assets in the estate, and the estate would have to close. Thus, the bankruptcy court's decision can be characterized as an all or nothing decision that fully resolves the issue to which it is addressed. In addition, the decision affects the substantive rights of the parties. As a result of the bankruptcy court's decision, it is likely that appellants' share of the Exxon judgment will be available to their creditors for the payment of debts that had been discharged. If appellants' share of the Exxon judgment is not to be a part of their bankruptcy estate, that decision should be made now so that the estate may close.
Preblich v. Battley, 181 F.3d 1048, 1055 (9th Cir. 1999).
Id.
The bankruptcy court's findings of fact are reviewed for clear error while conclusions of law are reviewed de novo. Here, the issue presented is whether the bankruptcy court's legal conclusion is correct. This court reviews de novo.
In re Pace, 146 B.R. 562, 564 (B.A.P. 9th Cir. 1992), aff'd, 17 F.3d 395 (9th Cir. 1994) (table).
B. Abandonment of the Exxon Claims
The bankruptcy court differentiated between appellants' Exxon and TAPLF claims and found that the Exxon claims were not abandoned by operation of law because they had not been scheduled and were not covered by the TAPLF claims that were scheduled. In pertinent part, the court concluded:
Bankruptcy docket 44 at 3-4.
The Transalaska Pipeline Fund (TAPLF) was created by Congress in 1973 as part of the Transalaska Pipeline Authorization Act. The Act provides for strict liability for all damages caused as a result of oil discharge from a vessel. Liability for one incident is capped at 100 million dollars. Owners and operators are responsible for fourteen million dollars of the fund. The balance comes from a 5 cent per barrel fee collected from the owner of the oil when the oil is loaded on a tanker. Claims against the fund have been treated as administrative claims. Claimants do not have to sue the fund to have their claims allowed. If there are insufficient funds to cover all claimants, claimants share the funds pro rata.
Claims against the Exxon Corporation and related entities for negligence or reckless conduct have no damages cap and require actual litigation. The Exxon Valdez proceedings have been pending for years and are now before the Ninth Circuit. These proceedings are not administrative in nature. They constitute class action litigation on a massive scale. The Redmonds properly scheduled their TAPLF claims. They were required to schedule all "contingent and unliquidated claims of every nature", however. They failed to schedule their claims against Exxon. [sic]. The fact that the debtors provided additional information stating that their claims arose out of commercial fishing losses from the 1989 Exxon Valdez oil spill does not excuse their failure to schedule this valuable asset. Nor does the fact that the trustee may have known about the federal district court claims change the result. Only scheduled claims may be abandoned under 11 U.S.C. § 554(c). The Redmonds' TAPLF claims were scheduled and have been abandoned to them, to the detriment of their creditors. However, the Redmonds' claims against Exxon and related entities currently being asserted in the Exxon litigation now pending before the Ninth Circuit were not scheduled and have not been abandoned. They remain property of the estate for the trustee to administer for the benefit of creditors.
Id. (citations omitted).
On appeal, appellants contend that their disclosure of the TAPLF claims should have put the trustee on notice of all their Exxon Valdez claims and was sufficient "in light of the nature and purpose of the bankruptcy schedules and forms." Appellants frame their argument around excerpts from the Advisory Committee Notes to the 1991 Amendments of the Schedules which are reprinted in Collier on Bankruptcy. According to appellants' piecemeal version of the Notes, the schedules need only present a "quick and easy list of relevant information" to the trustee who must then investigate the details. Appellants contend they provided as much in their listing of the TAPLF claims and therefore argue that their Exxon claims were scheduled and, hence, abandoned when the bankruptcy case closed. Appellants' argument is unpersuasive because it is contrary to the decisions of this circuit and at least two others.
Docket 5 at 5.
See 11 Collier on Bankruptcy, ¶ 8.41, (Lawrence King, et al., eds. 15th ed. 1997).
Docket 5 at 5 and 7.
Id. at 5-7.
The Bankruptcy Code obligates debtors to file schedules of assets and current income as well as a statement of financial affairs. Schedules and statements are required so that the trustee and court have a detailed and complete picture of the debtor's finances in a format that facilitates the administration of the case. Once these documents are provided, the trustee is charged with the duty of investigating the financial affairs of the debtor.
11 U.S.C. § 521(1); FBRP 1007(b).
4 Collier on Bankruptcy, ¶ 521.06, (Lawrence King, et al., eds. 15th ed. 1998).
28 U.S.C. § 704(4).
Property of the bankruptcy estate that is not administered at the close of the estate is deemed abandoned by operation of law. Because abandonment is meant to be the result of an informed decision and not inadvertence, an affirmative action by the trustee or some other evidence of an intent to abandon the asset is a prerequisite to abandonment, To safeguard against inadvertence, bankruptcy case law limits the property that may be abandoned by operation of law to that property which is explicitly scheduled under § 521(1). This, limitation has few exceptions.
11 U.S.C. § 554(c). Also called a "technical abandonment".
In re Schmid, 54 B.R. 787, 80 (Bankr. Or. 1985).
In re Pace, 146 B.R. at 566.
Id. at 564 (this reduces the possibility that valuable assets are unwittingly abandoned).
See In re Kottmeier, 240 B.R. 440, 443 (M.D.Fla. 1999); In re McCoy, 139 B.R. 430, 431 (Bankr.S.D.Ohio 1991); Jeffrey v. Desmond, 70 F.3d 183, 186 (1st Cir. 1995); Vreugdenhill v. Navistar Int'l Transp. Corp., 950 F.2d 524, 526 (8th Cir. 1991); In re Winbum, 167 B.R. 673, 676, (Bankr.N.D.Fla. 1993); and In re Davis, 158 B.R. 1000, 1002 (Bankr.N.D.Ind. 1993). In re Hill, 195 B.R. 147 (Bankr. N.M. 1996), is an exception to this rule. However, that case is distinguishable and is discussed infra.
It is undisputed that appellants did not explicitly schedule their claims against Exxon. Appellants also offer no evidence that demonstrates the trustee was aware of the Exxon claims or that the trustee intended to abandon them. Appellants do offer the testimony of David Oesting, one of the plaintiffs' attorneys in the Exxon litigation. Mr. Oesting reviewed appellants' schedule of assets, including their TAPLF claims, and testified that an individual who, like appellants, lost wages due to the Exxon Valdez oil spill would have a potential claim against Exxon. Appellants argue that Oesting's testimony is sufficient evidence that their claims against Exxon were adequately disclosed. The court disagrees. That Oesting, an attorney involved in the Exxon class action case, could spot a potential Exxon claim does not mean that the trustee knew a claim against Exxon existed. Moreover, even if the trustee should have known there was a claim, appellants' argument is contrary to the interpretation of § 554(c) adopted by the courts that have considered the issue. It is not enough that the trustee knows of an asset or claim at the time the case is closed. Scheduling of an asset is a mandatory prerequisite to abandonment because that is the only way an intent to abandon can be inferred at the close of the estate. The fact that the TAPLF statements reference lost income and the Exxon Valdez oil spill does not change this result. Inclusion of the TAPLF claims only supports an inference that the trustee intended to abandon the TAPLF claims; it does not give rise to an inference that the trustee intended to abandon the Exxon claims. Absent evidence that the trustee intended to abandon the Exxon claims, those claims cannot be considered abandoned.
Bankruptcy docket 53 at 7.
Docket 5 at 6-7.
In re Pace, 146 B.R. at 566.
Id.; In re Schmid, 54 B.R. at 80. The In re Schmid decision best summarizes the applicable law:
Where an apparent no asset case is routinely closed by the Court without the notice to creditors otherwise required by Bankr. R. 2002 and 6007, 11 U.S.C. § 554(c) does not inject the element of gamesmanship relied on here by the debtor to trap the unwary trustee and inadvertently deny creditors the benefit of a substantial asset. Abandonment of an asset of the estate, like the sale of an estate asset back to the debtor, has to be the result of an intelligent decision made in the context of notice and opportunity for a hearing.Id. (citations omitted).
The court is aware that the Tenth Circuit recently voiced a somewhat different position in In re Woods, 173 F.3d 770 (10th Cir. 1999). The Tenth Circuit held that a "technical abandonment is necessarily the effect of the closing order regardless of the trustee's intentions". Id. at 776. However, that case is distinguishable. The asset in question had been scheduled and the court, specifically premised its conclusion on that fact. Id. This case presents a much different issue.
It is for this same reason that appellants' reliance on In re Hill is misplaced. In that case, a trustee moved to reopen a bankruptcy case so that special counsel could pursue a fraudulent transfer claim against the debtor. The debtor objected and argued that the fraudulent transfer claim had been abandoned by operation of law at the close of the bankruptcy. The court found that the claim had been abandoned because the record demonstrated that the trustee made an informed decision to abandon the claim despite the fact that the claim was not listed on the schedule. The record included evidence that the claim was listed in the debtor's statement of financial affairs, the trustee discussed the claim with the debtor's attorney, and the trustee postponed a decision on whether there were assets in the estate in order to investigate further. In this case, there is no comparable evidence from which the court can conclude that the trustee made an informed decision to abandon the Exxon claims.
195 B.R. 147 (Bankr. N.M. 1996).
Id. at 150.
Id.
C. Revocation of the Abandonment
Because the court concludes there was no abandonment of Exxon claims, it need not decide whether such abandonment can be revoked.
IV. CONCLUSION
For the above reasons, the decision of the bankruptcy court is AFFIRMED.