Opinion ID: 774852
Heading Depth: 2
Heading Rank: 1

Heading: Pre-Petition Compositions

Text: 18 Cusano contends that the district court erred in granting summary judgmentdismissing for lack of standing all of his claims concerning his interests in pre-petition compositions. 3 We agree, in part. For Cusano to have standing, he, rather than the bankruptcy estate, must own the claim upon which he is suing. The question of ownership turns on the validity and effect of Cusano's listing of his songrights  as an asset in his bankruptcy schedules. We conclude that Cusano's scheduled songrights asset reverted to him upon the confirmation of his reorganization plan--by technical abandonment and by express provision of the plan--and vested in him all post-petition royalty rights to his pre-petition compositions, despite his probable undervaluation of the songrights. He thus reacquired ownership of all claims to royalties derived from these compositions post-petition, but not claims for unpaid pre-petition royalties, which were required to be scheduled separately as either receivables or legal claims. Thus, we reverse the district court in part, and reinstate some of Cusano's royalty claims. 19 An estate is created when a bankruptcy petition is filed. See 11 U.S.C. § 541(a); In re Fitzsimmons, 725 F.2d 1208, 1210 (9th Cir. 1984). Property of a bankruptcy estate includes all legal or equitable interests of the debtor in property as of the commencement of the case. § 541(a)(1). This broad category includes [p]roceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case. § 541(a)(6). Thus, postpetition revenues belong to the estate to the extent they are based on pre-petition services or agreements. See, e.g., In re Jess, 215 B.R. 618, 621 (B.A.P. 9th Cir. 1997); In re Wu, 173 B.R. 411, 414-15 (B.A.P. 9th Cir. 1994); Ryerson v. Rau, 739 F.2d 1423, 1425 (9th Cir. 1984). Accordingly, Cusano's future royalties from his pre-petition Creatures of the Night and Lick It Up compositions became assets of his bankruptcy estate. See In re Dillon, 219 B.R. 781, 784 (Bankr. M.D. Tenn. 1998); Waldschmidt v. CBS, Inc., 14 B.R. 309, 311-12 (M.D. Tenn. 1981). In addition, assets of the estate properly included any of Cusano's causes of action. See Sierra Switchboard Co. v. Westinghouse Elec. Corp. , 789 F.2d 705, 708 (9th Cir. 1986). The question presented here is what happened to these assets of the estate during and after their administration in bankruptcy. 20 Two separate sections of the bankruptcy code govern reversion of assets of the bankruptcy estate to the debtor. The first provision, which applies to all forms of bankruptcy, including Chapter 11, is the technical abandonment provision: Unless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title. 11 U.S.C. § 554(c). The second provision is unique to Chapter 11 bankruptcies, and sets forth the effect of confirmation: Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor. Id. § 1141(b). 21 The bankruptcy code placed an affirmative duty on Cusano to schedule his assets and liabilities. Id. § 521(1). If he failed properly to schedule an asset, including a cause of action, that asset continues to belong to the bankruptcy estate and did not revert to Cusano. See Stein v. United Artists Corp., 691 F.2d 885, 893 (9th Cir. 1982) (holding that only property administered or listed in the bankruptcy proceedings reverts to the bankrupt); accord Hutchins v. IRS, 67 F.3d 40, 43 (3d Cir. 1995); Vreugdenhill v. Navistar Int'l Transp. Corp., 950 F.2d 524, 526 (8th Cir. 1991) (holding that property is not abandoned by operation of law unless the debtor formally schedule[s] the property before the close of the case). 22 [T]he debtor has a duty to prepare schedules carefully, completely, and accurately. In re Mohring , 142 B.R. 389, 394 (Bankr. E.D. Cal. 1992); accord In re Jones , 134 B.R. 274, 279 (N.D. Ill. 1991); In re Baumgartner, 57 B.R. 513, 516 (Bankr. N.D. Ohio 1986); In re Mazzola, 4 B.R. 179, 182 (Bankr. D. Mass. 1980). Although there are no bright-line rules for how much itemization and specificity is required, Cusano was required to be as particular as is reasonable under the circumstances. In re Mohring, 142 B.R. at 395. If possible, Cusano was to list the approximate dollar amount of each asset. See In re Wenande, 107 B.R. 770, 772 (Bankr. D. Wyo. 1989). If faced with a range of values, he was to choose a value in the middle of the range. In re Seruntine, 46 B.R. 286, 288 (Bankr. C.D. Cal. 1984). There are assets, however, the value of which is unknown; when that is the case, a simple statement to that effect will suffice. In re Wenande, 107 B.R. at 772. 23 Generally, mistakes in valuation will not enable a trustee to recover an abandoned asset, Hutchins, 67 F.3d at 44, not even upon subsequent discovery that the property has a greater value than previously believed. In re McGowan, 95 B.R. 104, 106 (Bankr. N.D. Iowa 1988); accord In re DeVore, 223 B.R. 193, 197 (B.A.P. 9th Cir. 1998) (recognizing the general rule that abandonment is irrevocable). Revocation of abandonment is appropriate, however, where the trustee is given incomplete or false information of the asset by the debtor, thereby foregoing a proper investigation of the asset. In re Ozer, 208 B.R. 630, 633 (Bankr. E.D.N.Y. 1997); accord In re Adair, 253 B.R. 85, 89 (B.A.P. 9th Cir. 2000); In re DeVore, 223 B.R. at 198. The cases that contemplate such action, however, indicate that the revocation may be effected only by express order after the reopening of the bankruptcy case. See, e.g., In re Ozer, 208 B.R. at 631; In re Adair, 253 B.R. at 88-89; In re DeVore, 223 B.R. at 198. 24 Cusano's listing was not so defective that it would forestall a proper investigation of the asset. Cusano scheduled songrights in . . . Songs written while in the band known as `KISS.'  He listed their value as unknown. His reorganization plan called for him to retain ownership of his songrights. In a memo to the bankruptcy court, Cusano listed songrights as an asset being retained under the plan and listed its value as $1,521.60. He then noted that, in addition to $40,000 he had already set aside . . . to pay creditors, he would contribute cash representing the value of these songrights in the amount of $1,521.60. He concluded by noting that these amounts constitute a fresh contribution which greatly exceeds the value of the property interest he is retaining. 25 The songrights asset as described by Cusano can reasonably be interpreted to mean copyrights and rights to royalty payments for songs written for the band KISS prepetition. The debtor in In re Dillon described a similar asset on her bankruptcy schedules as songwriter's share of songs. 219 B.R. at 783. Although it would have been more helpful for Cusano to break down the description further so that it named songs, albums, and dates of and parties to royalty and copyright agreements, the additional detail would not have revealed anything that was otherwise concealed by the description as it was, which provided inquiry notice to affected parties to seek further detail if they required it. Any undervaluation of the songrights asset does not impair Cusano's interest in it, because only an express order of revocation after reopening of the bankruptcy case would do so, and that did not occur. 4 See In re Adair, 253 B.R. at 88-89; In re Ozer, 208 B.R. at 631. 26 We conclude, therefore, that his listing of the songrights asset was a sufficient scheduling of Cusano's interest in his pre-petition compositions, which reverted to him upon confirmation of his plan. The reversion vested in Cusano the rights to post-petition royalties on his pre-petition compositions and other damages accruing post-petition with respect to these pre-petition compositions. The district court erred when it applied to Cusano's case the general rule that post-petition revenues based on pre-petition services or agreements belong to the bankruptcy estate. In re Dillon, 219 B.R. at 784. The rule is simply not applicable here, because the actual pre-petition service or agreement at issue in this case, songrights, reverted to Cusano's ownership. 27 Unpaid pre-petition royalties and other damages which accrued pre-petition, on the other hand, did not revert to Cusano with the songrights asset, because these were subject to a separate scheduling requirement as accrued causes of action. Causes of action are separate assets which must be formally listed. Vreugdenhill, 950 F.2d at 526. Simply listing the underlying asset out of which the cause of action arises is not sufficient. See id. at 525 (stating that debtor who scheduled parts as an asset failed properly to list a cause of action for failure to accept those parts). 28 Cusano contends that his royalty claims for pre-petition compositions involved an open book account, see Cal. Code Civ. Proc. § 337a, and thus no legal claim accrued until the entry of the last item, see § 337, well after his bankruptcy. We reject this contention. It is true that, generally, a debtor has no duty to schedule a cause of action that did not accrue prior to bankruptcy. Brassfield v. Jack McLendon Furniture, Inc., 953 F. Supp. 1424, 1433 (M.D. Ala. 1996); Erickson v. Baxter Healthcare, 94 F. Supp. 2d 907, 912-13 (N.D. Ill. 2000). To determine when a cause of action accrues, we look to state law. In re Folks, 211 B.R. 378, 384 (B.A.P. 9th Cir. 1997). It is important, however, to distinguish principles of accrual from principles of discovery and tolling, which may cause the statute of limitations to begin to run after accrual has occurred for purposes of ownership in a bankruptcy proceeding. In re Swift, 129 F.3d 792, 796, 798 (5th Cir. 1997). 29 We conclude that Cusano's open book account claim accrued for bankruptcy purposes to the extent that sums were owed on that account at the time he filed his petition. An action could have been brought for those sums at that time. Our conclusion is not affected by the fact that limitations on such an action had not yet begun to run. An action for open book account in California must commence within four years of the entry of the last item on the account. See Cal. Code Civ. Proc. § 337. Cusano's alleged open book account with Defendants has been open for years, and could continue to remain open for years to come. Cusano cannot avoid disclosing on his bankruptcy schedules a claim for an unpaid royalties balance, which was ascertainable and collectible when he filed his petition, simply because this claim does not accrue for statute of limitations purposes until the royalties dry up or payment is refused. Thus, if there was any outstanding balance due Cusano on the open book account when he filed for bankruptcy, he was under a duty to schedule it as a receivable or as a cause of action for unpaid royalties. His failure to do so vests the claim in the bankruptcy estate, where it remains. 5 The district court's decision that Cusano could not sue on his open book account claims was accordingly correct with regard to any sums owing at the time of petition. But Cusano retains standing to sue for any royalty payments coming due post-petition. 30 Finally, we reject Defendants' contention that the doctrine of res judicata bars Cusano's appeal of the district court's decisions concerning standing, because of the bankruptcy court's ruling that it would not reopen Cusano's bankruptcy nor reconsider the district court's findings. The doctrine of res judicata bars a party from bringing a claim if a court of competent jurisdiction has rendered a final judgment on the merits of the claim in a previous action involving the same parties or their privies. In re Int'l Nutronics, Inc., 28 F.3d 965, 969 (9th Cir. 1994). The bankruptcy court simply denied Cusano's motion to reopen. The only res judicata effect of this denial is that the consequences of the prior closing will not be disturbed. Just as the mere reopening of a bankruptcy case is a ministerial act that lacks independent legal significance and determines nothing with respect to the merits of the case, see In re Menk, 241 B.R. 896, 913-17 (B.A.P. 9th Cir. 1999), the mere refusal to reopen a bankruptcy case similarly has no impact on the property of the debtor or the estate. Any reference to the findings of the district court here was simply a statement that the bankruptcy court would not interfere with those findings. The district court made findings with regard to the consequences of the prior closing, and those findings, undisturbed by the bankruptcy court, are what are before us on appeal. 31 In sum, we conclude that Cusano sufficiently scheduled his songrights, which vested in him upon confirmation of his Chapter 11 reorganization plan. Any undervaluation was not fatal, absent some sort of action in the bankruptcy court. All post-petition songright royalties are Cusano's property because he retains the songrights asset. Accordingly, we reverse the summary judgment in part and reinstate Cusano's claims 1 through 5 for open book account, breach of fiduciary duty, fraud, and misrepresentation; and claims 9 and 10 for conversion and imposition of constructive trust, to the extent they seek post-petition royalties relating to pre-petition compositions, or other damages that arose post-petition. Unpaid royalties that arose pre-petition, however, were subject to scheduling and should have been listed as either a receivable or as an existing cause of action. Because they were not scheduled, they remain dormant in the bankruptcy estate. The same result follows for all royalty-related claims, such as those for breach of fiduciary duty, fraud, and conversion, which arose pre-petition. We affirm the judgment of the district court with regard to these claims that had accrued by the time of the bankruptcy petition.