Opinion ID: 4553073
Heading Depth: 2
Heading Rank: 1

Heading: Bankruptcy trustees can abandon to a creditor

Text: their authority to pursue the estate’s claims As discussed, the Bankruptcy Code makes a creditor’s derivative causes of action property of the estate. From there, the trustee decides how best to manage them for the benefit of all 15 creditors. Myers v. Martin (In re Martin), 91 F.3d 389, 394 (3d Cir. 1996). One option is to prosecute those claims to judgment. See, e.g., Shearer v. Titus (In re Titus), 916 F.3d 293, 298–99 (3d Cir. 2019). Another is to settle and extinguish them. See, e.g., Northview Motors, Inc. v. Chrysler Motors Corp., 186 F.3d 346, 347–48 (3d Cir. 1999). But the trustee also has a third option: he can instead relinquish those claims. For instance, he might formally abandon them if the cost of pursuing them would be “burdensome” or outweigh the likely gain to the estate. 11 U.S.C. § 554(a). An abandoned claim, like abandoned property in general, flows to someone else. The abandoned property can flow back “to any party with a possessory interest in it.” Collier, supra, ¶ 554.02[3]; accord Dewsnup v. Timm (In re Dewsnup), 908 F.2d 588, 590 (10th Cir. 1990) (per curiam) (“Following abandonment, whoever had the possessory right to the property at the filing of the bankruptcy again reacquires that right.” (internal quotation marks omitted)), aff’d, 502 U.S. 410 (1992). If the bankruptcy has ended, abandonment sends the property back to the debtor. See 11 U.S.C. § 554(c). Otherwise, the property reverts to “some other party,” like “a secured creditor who has possession of the property when the trustee abandons the estate’s interest.” Collier, supra, ¶ 554.02[3]. When, as here, the abandoned property is a cause of action, the right to assert it “revert[s] back to the prior holder.” Id. ¶ 548.02[5][a]. Thus, if a trustee abandons a cause of action, the “creditor’s right to pursue” it “spring[s] back to life.” Id.; accord St. Paul Fire & Marine Ins. Co., 884 F.2d at 698 16 (noting that “a trustee could choose to abandon a claim, and allow creditors to pursue it independently”). To be sure, if the trustee wants to abandon any property during the bankruptcy, he must do so “overt[ly].” Collier, supra, ¶ 548.02[5][a]; see also O’Dowd v. Trueger (In re O’Dowd), 233 F.3d 197, 200 n.3 (3d Cir. 2000) (noting that “[a]bandonment is an intentional act”). Thus, we and our sister circuits have declined to hold that a cause of action was abandoned when the evidence was “ambiguous.” Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116, 123–24 (2d Cir. 2008) (per curiam); see also O’Dowd, 233 F.3d at 200 n.3 (citing Hanover Ins. Co. v. Tyco Indus., Inc., 500 F.2d 654, 657–58 (3d Cir. 1974)). But when the evidence of abandonment is clear, any abandoned causes of action revert to their prior owner. Collier, supra, ¶ 548.02[5][a].