Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-06-00007/USCOURTS-ca10-06-00007-0/pdf.json

Parties Involved:
Randy L. Royal
Appellee
Bonnie Lynn Rubesh
Appellant
Leland James Rubesh
Appellant

Document Text:

* This order and judgment is not binding precedent, except under the

doctrines of law of the case, res judicata, and collateral estoppel. 10th Cir. BAP

L.R. 8018-6(a).

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

July 6, 2006

Barbara A. Schermerhorn

Clerk NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE LELAND JAMES RUBESH and

BONNIE LYNN RUBESH,

Debtors.

BAP No. WY-06-007

LELAND JAMES RUBESH and

BONNIE LYNN RUBESH,

Appellants,

Bankr. No. 04-22317

 Chapter 7

v. ORDER AND JUDGMENT*

RANDY ROYAL, Trustee,

Appellee.

Appeal from the United States Bankruptcy Court

for the District of Wyoming

Before CORNISH, MICHAEL, and NUGENT, Bankruptcy Judges.

CORNISH, Bankruptcy Judge.

The parties did not request oral argument, and after examining the briefs

and appellate record, the Court has determined unanimously that oral argument

would not materially assist in the determination of this appeal. Fed. R. Bankr. P.

8012. The case is therefore ordered submitted without oral argument.

Debtors/Appellants Leland and Bonnie Rubesh (“Debtors”) appeal a

judgment entered by the United States Bankruptcy Court for the District of

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 1 of 8
1 Schedule D, in Appellants’ Appendix at 12.

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Wyoming in favor of the Chapter 7 trustee, Randy L. Royal (“Trustee”), granting

Trustee’s Motion to Compel Turnover of certain property held by Debtors. 

Debtors also appeal the court’s order denying their request to alter or amend the

turnover order. Debtors claim that the property requested is subject to an IRS tax

lien, rendering it of “inconsequential value” under 11 U.S.C. § 542(a), and

therefore not subject to turnover. For the following reasons, we affirm the

decision of the bankruptcy court.

I. Background

The Debtors filed their Chapter 7 petition on December 2, 2004. They

listed the IRS as a secured creditor in the amount of $74,712, and identified the

secured property as certain real estate valued at $108,100 and “all other assets.”1

After the 341 creditor’s meeting, the Trustee sent the Debtors’ attorney a letter

requesting that Debtors calculate the value of certain accounts receivable and

remit one quarter of that value to the Trustee. The Trustee then filed a Motion to

Compel Turnover in which he requested that the court order the Debtors to turn

over property of the estate consisting of $1,158.35 in accounts receivable, a nonexempt bank account containing $121, firearms valued at $230, jewelry valued at

$115, and a 1959 Austin Healy automobile valued at $250. In the alternative, the

Trustee gave the Debtors the option of repurchasing the firearms, jewelry and

automobile from the estate in the amounts stated. The Trustee further represented

to the court that he believed this to be an asset case, and that upon turnover he

would verify the existence and extent of the IRS lien and then deal directly with

the IRS regarding sale of the requested estate property. 

The Debtors filed an objection to the turnover motion, arguing that all

assets were encumbered by the IRS tax lien, which lien exceeded the value of all

of Debtors’ property, and that the Trustee would favor a secured creditor over

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 2 of 8
2 The court’s order states: “These minutes constitute the court’s official

order in this matter[.]” Minutes of Proceedings, in Appellants’ Appendix at 11.

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unsecured creditors if the turnover motion was granted. 

A hearing was held on the Trustee’s Motion and the Debtors’ Objection. 

The bankruptcy court granted the Trustee’s Motion and memorialized its decision

in a hand-written minute order, signed by the Deputy Court Clerk.2

 The minutes

reflect that the IRS had not yet filed a claim, and that after turnover of the

property the Trustee could investigate the status of the IRS claim. No transcript

of this hearing is part of the appellate record, and the Court is thus deprived of

the opportunity for a more meaningful review. 

The Debtors filed a Motion to Alter or Amend the order granting the

Trustee’s turnover motion, and attached copies of federal tax liens totaling

$205,460 filed against Debtors’ property. The Debtors argued that the Trustee’s

motion and the court’s decision were premature, and that the court should have

considered whether the IRS was likely to release part of its liens before it ordered

turnover of the property to the Trustee. In a written order, the court denied the

Motion to Alter or Amend on the grounds that the Debtors failed to raise new

issues or error of law or fact, and that the Trustee had the responsibility and

authority to liquidate the estate for the benefit of all creditors. This appeal

followed. 

II. Jurisdiction

This Court has jurisdiction to hear timely-filed appeals from “final

judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,

unless one of the parties elects to have the district court hear the appeal. 28

U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002. Neither party

elected to have this appeal heard by the United States District Court for the

District of Wyoming, thus consenting to review by this Court.

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 3 of 8
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A decision is considered final if “it ‘ends the litigation on the merits and

leaves nothing for the court to do but execute the judgment.’” Quackenbush v.

Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin v. United States, 324

U.S. 229, 233 (1945)). Although one of the orders appealed is memorialized in a

minute order, the form of that order does not prohibit appellate review where

there is no question as to the finality of the bankruptcy court’s decision. See,

Kunkel v. Cont’l Cas. Co., 866 F.2d 1269, 1272 n.3 (10th Cir. 1989) (citing

Bankers Trust Co. v. Mallis, 435 U.S. 381, 382-388 (1978)). This court is

satisfied that a turnover order is a final, appealable order. In re Yates, 332 B.R.

1, 3 (10th Cir. BAP 2005). Failure to set forth a judgment or order on a separate

document does not affect the validity of an appeal from that judgment or order. 

Fed. R. App. P. 4(a)(7). The clerk of court for the Wyoming Bankruptcy Court

has authority to execute documents as authorized by the court. Wyo. L.B.R.

5003-1.

III. Standard of Review

The facts herein are not disputed; therefore, the only issues presented on

appeal involve questions of law. Questions of law are reviewable de novo. 

Pierce v. Underwood, 487 U.S. 552, 558 (1988); Fowler Bros. v. Young (In re

Young), 91 F.3d 1367, 1370 (10th Cir. 1996). De novo review requires an

independent determination of the issues, giving no special weight to the

bankruptcy court’s decision. Salve Regina Coll. v. Russell, 499 U.S. 225, 238

(1991). This court will therefore treat the minute order as a final, appealable

order and review the decision of the bankruptcy court expressed in that order,

along with the court’s order denying the Motion to Alter or Amend. 

IV. Discussion

A trustee in bankruptcy is charged with the obligation of gathering the

assets of the estate and managing those assets to maximize their value to the

estate: “The trustee shall - (1) collect and reduce to money the property of the

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 4 of 8
3 This case was filed before October 17, 2005, when most provisions of the

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became

effective. All statutory references to the Bankruptcy Code are to 11 U.S.C.

§§ 101 to 1330 (2004), unless otherwise specified. All references to the Federal

Rules of Bankruptcy Procedure are to Fed. R. Bankr. P. (2004), unless otherwise

specified.

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estate for which such trustee serves, and close such estate as expeditiously as is

compatible with the best interests of parties in interest . . . .” 11 U.S.C. § 704.3

 

The Bankruptcy Code also imposes duties upon the debtor. “‘[A] debtor who

voluntarily submits him or herself to the jurisdiction of the bankruptcy court to

obtain the benefit of a discharge of debts, must fulfill certain duties to insure that

estate assets are administered in accordance with applicable law.’” In re Midkiff,

342 F.3d 1194, 1201 (10th Cir. 2003) (quoting In re Beach, 281 B.R. 917, 921

(10th Cir. BAP 2002)). A debtor is required to “surrender to the trustee all

property of the estate . . . .” 11 U.S.C. § 521(4). Federal Rule of Bankruptcy

Procedure 4002(4) further requires that debtors “cooperate with the trustee

in . . . the administration of the estate . . . .” Property of the estate is defined as

all legal or equitable interests of the debtor in property as of the commencement

of the case. 11 U.S.C. § 541(a).

Here, the Debtors do not deny that they have an interest in the property that

the Trustee seeks to recover, but they object to surrendering the property because

they believe it to be over-encumbered by tax liens. Turnover, however, is not

intended as a remedy to determine disputed rights of parties to property, but is a

remedy to obtain what is acknowledged to be property of a debtor’s estate. See,

e.g., Gallucci v. Grant (In re Gallucci), 931 F.2d 738, 741 (11th Cir. 1991); FLR

Co., Inc. v. Brant Constr. Co. (In re FLR Co., Inc.), 58 B.R. 632, 634 (Bankr.

W.D. Pa. 1985). To prevail in an action seeking to compel a debtor to surrender

estate property, the trustee must prove: (1) that the property at issue belongs to

the bankruptcy estate, and (2) that the debtor has the present power to surrender

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 5 of 8
4 The applicable language provides: “[A]n entity . . . in possession, custody,

or control, during the case, of property that the trustee may use, sell, or lease

under section 363 of this title . . . shall deliver to the trustee, and account for,

such property or the value of such property, unless such property is of

(continued...)

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the property. See, Amdura Nat’l Distrib. Co. v. Amdura Corp., Inc. (In re

Amdura Corp.), 75 F.3d 1447, 1451 (10th Cir. 1996) (debtor’s ownership of

property is first inquiry); In re Santaella, 298 B.R. 793, 799 (Bankr. S.D. Fla.

2002). Once the trustee makes out a prima facie case on these issues, the burden

shifts to the debtor to produce some evidence disputing the trustee’s prima facie

case. See, In re Lawrence, 251 B.R. 630, 640 (Bankr. S.D. Fla. 2000) (citing

Maggio v. Zeitz, 333 U.S. 56 (1948)), aff’d, 279 F.3d 1294 (11th Cir. 2002). 

In this case, there was no dispute that the property sought by the Trustee

was owned by the Debtors and was property of the bankruptcy estate. Also

undisputed was the fact that the Debtors had possession of the property and the

power to surrender it to the Trustee. The Trustee met his burden of proof to

compel Debtors to turn over the property. The Debtors simply refused to comply

with the request because they believed that the Trustee was improperly acting as

an agent of the IRS. Like the bankruptcy court, we do not believe this reason is

sufficient to defeat the Trustee’s right to the property. There is no evidence in the

record stating or implying that some agreement exists for the Trustee to operate

on behalf of the IRS and to the disadvantage of other creditors. The Trustee

stated that after he received the property, he would determine the existence,

nature and extent of any liens with the IRS. The record reflects that no claim was

filed by the IRS and that the validity of its lien had not yet been determined at the

time the bankruptcy court’s decisions were entered. 

On appeal, the Debtors argue that the property was of “inconsequential

value” since it was over-encumbered, and that therefore the Trustee should be

prohibited from collecting the property pursuant to 11 U.S.C. § 542(a).4

 The

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 6 of 8
4 (...continued)

inconsequential value or benefit to the estate.”

5 See, In re Tobin, 202 B.R. 339 (Bankr. D.R.I. 1996).

6 See, In re Feinstein Family P’ship, 247 B.R. 502 (Bankr. M.D. Fla. 2000).

7 See, In re Lambert Implement Co., Inc., 44 B.R. 860 (Bankr. W.D. Ky.

1984).

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record does not reflect that the Debtors raised this particular argument or

statutory language to the bankruptcy court. “Issues not raised before the trial

court will not ordinarily be considered when raised for the first time on appeal.” 

Diviney v. NationsBank of Tx. (In re Diviney), 225 B.R. 762, 771 (10th Cir. BAP

1998). Debtors did argue that the requested property was fully encumbered by

tax liens, but the focus of their objection to the Trustee’s turnover request was

that the Trustee was favoring a secured creditor over unsecured creditors. 

Accordingly, this Court will not consider the Debtors’ argument regarding

“inconsequential value” in this appeal, except to affirm the bankruptcy court’s

decision that the Trustee should take possession of the property and then

investigate the status of the liens to determine how best to maximize the value of

these assets to the estate. 

The Debtors direct us to cases which state that a trustee is to work for the

unsecured, rather than secured, creditors. The Court agrees that a trustee should

work to increase the value of the estate to benefit creditors. The cases cited by

the Debtors, however, involve situations where the trustee made arrangements

with a secured creditor to receive some sort of special compensation to generate a

fee for himself,5

 or received compensation in exchange for benefitting a particular

secured creditor over another creditor,6

 or where the trustee was clearly seeking to

generate administrative fees.7

 None of those situations exist here. Instead, we

have the Trustee’s representation that he believes it would benefit the estate to

recover this property, and then determine the validity and extent of the IRS lien. 

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 7 of 8
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Thus, it is possible that the Trustee can sell these assets free from the IRS liens

and generate income for the estate.

It is the Trustee’s statutory duty to administer the assets of the estate and,

once the property is surrendered to him, to determine the value of such property

to the estate and determine whether to sell it pursuant to § 363, abandon it

pursuant to § 554, or otherwise dispose of it pursuant to § 724 or § 725. It is

within the Trustee’s discretion to determine which action to take regarding the

property, but first he must obtain possession. Some of the assets sought by the

Trustee are bank accounts and receivables, and he is attempting to obtain and

preserve these liquid assets as is his duty. There is no evidence in the record, no

finding by the bankruptcy court, nor issue raised on appeal that the Trustee is

pursuing these assets primarily to obtain Trustee compensation. Accordingly, it is

this Court’s decision that Debtors should surrender the requested property to the

Trustee, and it will then be the Trustee’s duty to resolve the issue of the IRS tax

lien and to determine how to dispose of these assets for the benefit of the estate.

V. Conclusion

For the reasons stated herein, the decision of the bankruptcy court granting

the Trustee’s Motion to Compel Turnover and denying Debtors’ Motion to Alter

or Amend Order is AFFIRMED.

BAP Appeal No. 06-7 Docket No. 18 Filed: 07/06/2006 Page: 8 of 8