United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

 

No. 03-6034 ND

 

In re: *

*

Etty R. Rosenberg, *

*

Debtor. *

*

Motor Coach Industries, Inc., * Appeal from the United States

* Bankruptcy Court for the 

Creditor - Appellant, * District of North Dakota

*

v. *

*

Wayne Drewes, *

*

Trustee - Appellee, and *

*

Etty R. Rosenberg, *

*

Debtor - Appellee. *

 

Submitted: December 4, 2003

 Filed: January 7, 2004 

 

Before SCHERMER, FEDERMAN, and VENTERS, Bankruptcy Judges
2

SCHERMER, Bankruptcy Judge

Motor Coach Industries, Inc. (“Appellant”) appeals the bankruptcy court order

authorizing Wayne Drewes (“Trustee”) to conduct an examination of the Appellant

pursuant to Federal Rule of Bankruptcy Procedure 2004. We have jurisdiction over

the appeal from the final order of the bankruptcy court authorizing the Rule 2004

examination. See 28 U.S.C. § 158(b). We would have affirmed the bankruptcy court

on the record before it. For the reasons set forth below, however, which include a

stipulation of a material fact which was not available to the bankruptcy court, we

reverse.

ISSUE

The issue on appeal is whether the court properly authorized the Trustee of the

Chapter 7 bankruptcy estate of Etty R. Rosenberg (“Debtor”) to conduct a Rule 2004

examination of the Appellant, the Debtor’s former employer. We conclude that the

court properly authorized the Trustee to conduct a Rule 2004 examination of the

Appellant to permit the Trustee to determine whether or not the estate had a claim

against the Appellant arising out of the termination of the Debtor’s employment.

However, in light of the parties’ stipulation on appeal that the Debtor’s employment

was terminated post-petition and post-conversion of her case from Chapter 13 to

Chapter 7, any claim for wrongful termination is property of the Debtor and not

property of the bankruptcy estate. Therefore, the Trustee should not be allowed to

conduct an examination of the Appellant pursuant to Rule 2004. 

BACKGROUND

On June 21, 2002, the Debtor filed a voluntary petition for relief under Chapter

13 of the United States Bankruptcy Code. At that time, the Debtor was employed by

the Appellant. On September 17, 2002, the Debtor filed a motion to convert her case
3

to one under Chapter 7 of the United States Bankruptcy Code. On September 19,

2002, the bankruptcy court entered its order converting the Debtor’s case to one under

Chapter 7. On September 20, 2002, the Appellant suspended the Debtor without pay.

In November 2002, the Appellant terminated the Debtor’s employment.

On January 13, 2003, the Debtor filed amended Schedules listing a claim against

the Appellant as an asset with a value of $5,700 and claiming an exemption in the claim

in the amount of $5,700.

On June 2, 2003, the Trustee filed a motion with the bankruptcy court seeking

authority to conduct a Rule 2004 examination of the Appellant. On June 9, 2003, the

Appellant filed its objection to the motion. On June 11, 2003, the bankruptcy court

entered its order directing the Appellant to produce certain documents to the Trustee

pursuant to Rule 2004. The Appellant appeals the June 11 order.

STANDARD OF REVIEW

Decisions authorizing examinations under Federal Rule of Bankruptcy

Procedure 2004 are reviewed for an abuse of discretion. Buckner v. Oklahoma Tax

Comm’n (In re Buckner), 271 B.R. 213 (B.A.P. 10th Cir. 2001); Rimsat, Ltd. v.

Hilliard, 207 B.R. 964, 969 (D. D.C. 1997); In re Dinubilo, 177 B.R. 932, 939

(E.D.Cal. 1993); Bank One, Columbus, N.A. v. Hammond (In re Hammond), 140

B.R. 197, 200-01 (S.D. Ohio 1992);. European-American Bank & Trust Co. v. GATX

Aircraft Corp. (In re Hawley Coal Mining Corp.), 47 B.R. 392, 394 (S.D. W.Va.

1984).

DISCUSSION

Pursuant to Federal Rule of Bankruptcy Procedure 2004, a bankruptcy court

may order the examination of any entity relating to the acts, conduct, property,
1 For example, Rule 11 subjects a party to sanctions for filing a claim if the

allegations and other factual contentions do not have evidentiary support. Fed. R.

Civ. P. 11( b). 

4

liabilities or financial condition of the debtor, or to any matter which may affect the

administration of the debtor’s estate, or the debtor’s right to a discharge. Fed. R.

Bankr. P. 2004(a) and (b). The Debtor listed the claim against the Appellant as an

asset in her amended schedules. In so doing, she brought an asset of the estate to the

Trustee’s attention. The Trustee is required to collect and reduce to money property

of the estate as expeditiously as is compatible with the best interests of parties in

interest. 11 U.S.C. § 704(1). Once the Trustee learned of the existence of the claim

against the Appellant, he had a duty to investigate the claim and determine if any value

existed for the benefit of the estate. The Trustee asked the Court to authorize him to

use the examination powers available through Rule 2004 to investigate the claim as an

asset of the estate. This was required for the Trustee to fulfill his statutorily mandated

responsibilities. The scope of the requested examination related to the claim which

was listed as an asset of the estate. Accordingly, the examination ordered by the court

was within the scope of Rule 2004. Fed. R. Bankr. P. 2004(b).

A bankruptcy trustee is placed in a precarious position when faced with a

potential lawsuit as an asset of the estate. The trustee must be certain that a cause of

action exists before filing a suit. Otherwise the trustee may be subject to sanctions for

filing a frivolous claim.1 On the other hand, the creditors of the bankruptcy estate

expect the trustee to pursue all valid claims on behalf of the estate. As a fiduciary, the

trustee has the duty to determine whether the claim has value which can be realized for

the benefit of creditors of the estate. Rule 2004 provides the mechanism for a trustee

to fulfill this obligation.
2

 At oral argument, we invited clarification of the date of the Debtor’s

termination. The parties submitted a stipulation on December 4, 2003 setting forth

the dates of suspension and termination.

5

Notwithstanding our conclusion that the court acted within its discretion in

authorizing the Rule 2004 examination, on appeal the parties disclosed2the fact that

the Appellant did not suspend or terminate the Debtor’s employment until after the

Debtor had filed her bankruptcy petition and converted her case to Chapter 7. As a

result of the parties’ stipulation, it is now apparent that any claim which the Debtor

may have against the Appellant is not property of her bankruptcy estate.

An estate was created when the Debtor filed her Chapter 13 petition on June 21,

2002. 11 U.S.C. § 541(a). The estate consisted of all property of the Debtor as of

that date. As of June 21, 2002, the Debtor was employed by the Appellant and had

no claim against it relating to suspension or termination. In a Chapter 13 case,

property of the estate also includes additional property which the debtor acquires

during the course of the Chapter 13 reorganization. 11 U.S.C. § 1306(a)(1).

Accordingly, had the Appellant suspended or terminated the Debtor’s employment

during the course of her Chapter 13 proceeding, any claim related to such suspension

or termination would have become property of her Chapter 13 estate. The suspension

and subsequent conversion did not occur until after the Debtors’ case was converted

to Chapter 7, however, therefore, any claim against the Appellant did not become

property of her Chapter 13 case.

Absent bad faith, when a case is converted from Chapter 13 to Chapter 7,

property of the estate in the Chapter 7 case consists of the property of the estate as

of the original Chapter 13 petition date which remains in the debtor’s control at the

time of conversion. 11 U.S.C. § 348(f)(1)(A). The Debtor’s claim for wrongful

suspension or termination did not exist as of the original petition date and therefore did

not become property of her Chapter 7 bankruptcy estate. To the extent the claim is
6

not property of the Debtor’s bankruptcy estate, any examination by the Trustee of the

Appellant does not fall within the scope of Rule 2004. Fed. R. Bankr. P. 2004(b). In

light of the new facts presented by the parties in the stipulation, we reverse the order

authorizing the Trustee to undertake the examination of the Appellant pursuant to Rule

2004. 

CONCLUSION

The bankruptcy court did not abuse its discretion in authorizing the Trustee to

conduct an examination of the Appellant pursuant to Rule 2004 to determine if the

estate had a claim arising out of the Appellant’s termination of the Debtor’s

employment. However, in light of the parties’ stipulation on appeal that the Debtor’s

employment was terminated post-petition and post-conversion to Chapter 7, any claim

for wrongful termination is property of the Debtor and not property of the bankruptcy

estate. Therefore, the order authorizing the Trustee to examine the Appellant pursuant

to Rule 2004 is reversed.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE

EIGHTH CIRCUIT