NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

:

In re: :

: Bankruptcy No. 10-33007 (RTL)

MARK J. DYEVOICH, et al., :

:

Debtors. :

 :

:

COMMERCE LIMITED PARTNERSHIP :

#9326, : CIVIL ACTION NO. 11-2551 (MLC)

:

Appellant, :

:

v. : MEMORANDUM OPINION

:

MARK J. DYEVOICH, et al., :

:

Appellees. :

 :

Appellant, Commerce Limited Partnership #9326 (“Commerce”),

appeals from part of an order of the United States Bankruptcy

Court for the District of New Jersey (“Bankruptcy Court”) entered

on February 18, 2011 (“2-18-11 Order”). (Dkt. entry no. 1, Not.

of Appeal.) The 2-18-11 Order, inter alia, overruled Commerce’s

objection to and permitted abandonment of an asset of the

bankruptcy estate identified as 3109 Ocean Drive, Emerald Isle,

North Carolina (the “North Carolina property”). See Bankr. No.

10-33007, dkt. entry no. 39, 2-18-11 Order. Appellees, Mark J.

Dyevoich and Barbara A. Dyevoich (“Debtors”) and John Michael

McDonnell, Chapter 7 Trustee (“Trustee”), have opposed the

appeal. (Dkt. entry no. 9, Appellee Br.) For the reasons stated

herein, this Court will affirm the part of the 2-18-11 Order that

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overruled Commerce’s objection to abandonment of the North

Carolina property.

BACKGROUND

Debtors filed a voluntary petition for relief under Chapter

7 of the United States Bankruptcy Code (the “Code”) on July 28,

2010. See Bankr. No. 10-33007, dkt. entry no. 1. The Bankruptcy

Court appointed the Trustee on July 29, 2010. See Bankr. No. 10-

33007, dkt. entry no. 3. Commerce is an unsecured creditor of

the bankruptcy estate having a claim for approximately $400,000. 

(Appellee Br. at 6; dkt. entry no. 10, Appellant Reply Br. at 4;

dkt. entry no. 1, Record on Appeal (“Record”) at 21.) 

The Trustee filed an Information for Notice of Abandonment

on November 2, 2010, advising creditors and other interested

parties of an intention to abandon two properties, namely 70

Connolly Drive, Milltown, New Jersey, and the North Carolina

property, as being of inconsequential value to the bankruptcy

estate. Bankr. No. 10-33007, dkt. entry no. 12, Not. of

Abandonment. The Notice of Abandonment stated that the North

Carolina property had a current market value of $900,000, and

liens on the property of $960,000, plus a 10% cost of sale. Id. 

Commerce objected to the proposed abandonment of both properties,

arguing that “the current market values of the two real

properties that the Trustee is seeking to abandon are

substantially higher than the values listed in the Notice of

Proposed Abandonment,” and that “[u]pon information and belief,

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if both properties are properly marketed for sale at an

appropriate price, they will yield substantial equity for the

benefit of Commerce and other creditors of the estate.” Bankr.

No. 10-33007, dkt. entry no. 20, Commerce Obj’n.

The Bankruptcy Court held a hearing on the proposed

abandonment on February 7, 2011. (Record at 144-148, 2-7-11 Hr’g

Tr.) At that hearing, counsel for Commerce indicated that

Commerce had not had an independent appraisal done of the North

Carolina property, but that its appraiser reviewed the Debtors’

appraisal and agreed with the figure of $1,250,000 as the value

of the property. (2-7-11 Hr’g Tr. at 2:18-21.) Commerce also

agreed that there were liens of $960,000 on the North Carolina

property. (2-7-11 Hr’g Tr. at 2:22-24.) Debtors’ counsel noted

that there “were two different numbers in the appraisal” for the

North Carolina property, one of which was the $1,250,000 figure

referred to by Commerce, and the other being an appraisal for

“about a million dollars, which was for sale within the next six

months.” (2-7-11 Hr’g Tr. at 3:1-4.) Commerce did not address

Debtors’ contention about the two different appraisal values at

the hearing.

The Bankruptcy Court sustained Commerce’s objection to the

proposed abandonment of the New Jersey property. As to the North

Carolina property, however, the Bankruptcy Court ruled that it

would “defer to the business judgment of the Trustee,” finding

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that Commerce did not “overcome the presumption that the Trustee

is acting in good faith and with due care.” (2-7-11 Hr’g Tr. at

4:6-10.) As a basis for this ruling, the Bankruptcy Court

further noted:

This property apparently is in the resort area and has

been hit severely by the recession and the downturn in

values of real property. And I find that the Trustee

has made a reasonable decision to abandon that property

as it’s unlikely to result in the net equity to the

estate. So I’m going to overrule the objection to the

abandonment of the North Carolina property.

(2-7-11 Hr’g Tr. at 4:11-17.) Consistent with the Bankruptcy

Court’s statements at the hearing, the Bankruptcy Court ordered

in the 2-18-11 Order “that Commerce’s objection to abandonment of

the . . . North Carolina Property . . . is overruled and the

North Carolina Property is hereby deemed abandoned by the Chapter

7 Trustee.” (2-18-11 Order at 3.)

Commerce appeals from the part of the Bankruptcy Court’s 2-

18-11 Order permitting abandonment of the North Carolina

property, arguing that the Bankruptcy Court erred in deferring to

the business judgment of the Trustee. Commerce argues that it

was erroneous for the Bankruptcy Court to accept the Trustee’s

reliance on the lower figure of “about a million dollars”

(actually an appraisal of $1,062,000 if the property were sold

after a market exposure time of 90-120 days) because “there are

no facts that would warrant that the NC Property would have to be

sold other than upon a reasonable market exposure time and not as

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a fire sale.” (Dkt. entry no. 6, Appellant Br. at 8 n.1.) Thus,

Commerce contends that the Bankruptcy Court should have

recognized that the market value for the North Carolina property

was the “‘AS-IS’ estimate of market value based on a reasonable

market exposure time” of $1,250,000, not the “‘AS-IS’ estimate of

market value based on a client-imposed restricted market exposure

time of 90-120 days.” (Id.; Record at 92-111, Appraisal of Real

Property Located at 3109 Ocean Drive, Emerald Isle, NC

(“Appraisal”).)

The Appraisal appears to be the sole source of information

regarding market value of the North Carolina property relied upon

by the Trustee, Bankruptcy Court, and Commerce when the issue of

abandonment of the North Carolina property was before the

Bankruptcy Court. In addition to the $1,250,000 and $1,062,000

appraisal figures, the Appraisal also contains the following

information: 

Market values have declined since 2005/06; the market

is slow at this time especially for properties over

$400,000; however, properties appear to be stabilizing. 

There is currently an over supply of homes. Marketing

time is over 6 months. 

. . .

Very limited sales have sold similar to the subject’s

GLA, quality, location, condition, and ocean front

views. This required using comps that have sold over 1

mile [away] and over 6 months [ago]; however, all comps

are located within the subject’s market area. 

. . .

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There were no sales or transfers of the subject or the

comparables in the 12 months prior to the effective

date of the appraisal or the current sales.

. . .

There is currently an over supply of properties in the

subject market. Marketing times are typically over 6

months. List-to-sale price ratio is typically around

20%.

. . .

The property values in the subject market have declined

over the past 24-36 months, but appear to be

stabilizing. The subject market consists of mostly 2nd

and retirement homes and has declined as a result of

the national economy.

(Appraisal at 1-2 & Addendum.)

DISCUSSION

I. Jurisdiction and Standard of Review

A district court has appellate jurisdiction over a

bankruptcy court’s final judgments, orders, and decrees. 28

U.S.C. § 158(a). Orders permitting abandonment of property of

the estate may be considered final orders. See, e.g., In re

Gunter, 410 B.R. 178, 181 & n.1 (Bankr. E.D.N.C. 2008); In re

Murphy, 95 B.R. 116, 116-17 (Bankr. W.D. Mo. 1988). A district

court reviews a bankruptcy court’s “legal determinations de novo,

its factual findings for clear error, and its exercise of

discretion for abuse thereof.” In re Am. Classic Voyages Co.,

405 F.3d 127, 130 (3d Cir. 2005) (quotation and citation omitted);

see Fed.R.Bankr.P. 8013 (“On an appeal the district court . . .

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may affirm, modify, or reverse a bankruptcy judge’s judgment,

order, or decree or remand with instructions for further

proceedings. Findings of fact, whether based on oral or

documentary evidence, shall not be set aside unless clearly

erroneous. . . .”). Also, the Court, when addressing mixed

questions of law and fact, divides the questions into their

respective components and applies the appropriate standard to

each. In re Brown, 951 F.2d 564, 567 (3d Cir. 1991).

II. Abandonment of Property Under Section 554

Section 554 of the Code allows for abandonment of property

of the estate. It provides that “[a]fter notice and a hearing,

the trustee may abandon any property of the estate that is

burdensome to the estate or that is of inconsequential value and

benefit to the estate.” 11 U.S.C. § 554(a). The procedure for

abandonment is set forth in Federal Rule of Bankruptcy Procedure

6007, which states that “the trustee . . . shall give notice of a

proposed abandonment or disposition of property to . . . all

creditors. . . . A party in interest may file and serve an

objection within 14 days of the mailing of the notice, or within

the time fixed by the court.” Fed.R.Bankr.P. 6007(a).

The decision as to which property to retain and which to

abandon is in the discretion of the trustee, who may “abandon

property that is ‘burdensome’ or ‘of inconsequential value and

benefit’ under § 554 of the Code.” In re Wilson, 94 B.R. 886,

888 (Bankr. E.D. Va. 1989). Thus, “a trustee’s disposition of

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estate property is reviewable only for the purpose of determining

whether the decision was made in an arbitrary or capricious

manner.” Id. When a party objects to the proposed abandonment

of estate property, it is incumbent upon the Bankruptcy Court to

“focus its examination upon the reasons underlying the trustee’s

determination and affirm a decision which reflects a business

judgment ‘made in good faith, upon a reasonable basis and within

the scope of his authority under the Code.’” Id. at 888-89

(quoting In re Curlew Valley Assocs., 14 B.R. 506, 513-14 (Bankr.

Utah 1981)). 

The abuse of discretion standard is “not hard and fast,” and

is to be applied with the “background understanding that

compromises are favored in bankruptcy.” In re Mailman Steam

Carpet Cleaning Corp., 212 F.3d 632, 635 (1st Cir. 2000)

(citation omitted). The trustee is required to “marshal an

estate’s assets and liabilities, and proceed in settling its

accounts on whatever grounds he, in his informed discretion,

believes will net the maximum return for the creditors,” and “an

inquiring court must accord him wide latitude should he conclude

that the game is not worth the candle.” Id.

III. Analysis

We find as an initial matter that the Bankruptcy Court

applied the correct legal standard in deferring to the business

judgment of the Trustee, presuming that the Trustee was acting in

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good faith and with due care, and accepting as reasonable the

Trustee’s determination that a sale of the North Carolina

property would not result in net equity to the estate. This is

what is contemplated by Section 554 of the Code. In re Wilson,

94 B.R. at 888-89.

The Appraisal relied on by the Bankruptcy Court and the

parties in considering the market value of the North Carolina

property, and whether any equity in that property existed in

light of the $960,000 in liens against it, provides a factual

basis for the Trustee’s decision to rely on the $1,062,000

“restricted market exposure time of 90-120 days” figure instead

of the “reasonable market exposure time” figure of $1,250,000. 

It states that (1) very few comparable properties had been sold,

(2) there is an over supply of properties in the subject market,

(3) marketing times typically exceed six months, and (4) the

housing market consisted mostly of second and retirement homes,

and had declined as a result of the downturn in the national

economy. The Bankruptcy Court referred to these considerations

during the hearing. (2-7-11 Hr’g Tr. at 4:11-17.) Given these

considerations, the Bankruptcy Court did not err in concluding

that it was reasonable and within the discretion of the Trustee

to determine that abandonment of the property was appropriate as

the property was “unlikely to result in the net equity to the

estate.” (2-7-11 Hr’g Tr. at 4:13-15.)

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Using the $1,062,000 figure as an approximation of the

realistic market value of the North Carolina property, between

the 10% cost of sale and the $960,000 in liens against the

property, the Bankruptcy Court correctly found that no equity

would result to the estate. The Court will therefore affirm the

part of the 2-18-11 Order of the Bankruptcy Court in issue. 

CONCLUSION

For the foregoing reasons, the Court will affirm the part of

the 2-18-11 Order of the Bankruptcy Court overruling the

objection concerning abandonment of the North Carolina property. 

The Court will issue an appropriate order.

 s/ Mary L. Cooper 

MARY L. COOPER

United States District Judge

Dated: January 23, 2012 

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