Opinion ID: 4553073
Heading Depth: 1
Heading Rank: 6

Heading: the trustee abandoned his statutory

Text: AUTHORITY OVER ARTESANIAS’S CLAIMS The trustee can, however, relinquish his statutory authority to bring general or derivative claims to a creditor. Because the Abandonment Order did just that, Artesanias regained the power to sue North Mill and Leisawitz Heller.
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].
By the Abandonment Order’s express terms, the trustee abandoned to Artesanias his statutory authority to pursue certain claims against North Mill and Leisawitz Heller. The Order relinquished “without limitation” all the estate’s “claims” (as broadly defined in § 101(5) of the Bankruptcy Code), except for the negligence, professional-liability, and breach-ofcontract claims that the trustee was pursuing against Leisawitz Heller, plus certain claims against Wilton’s old owner and his wife. App. 470–71. The trustee thus relinquished all claims that the Order did not expressly spare. The abandoned claims included all of Artesanias’s current claims against Leisawitz Heller (claims for breach of fiduciary 17 duty, fraudulent transfer, unreasonable disposition of assets, and aiding and abetting and conspiring to commit those torts). The abandoned claims also included Artesanias’s claims against North Mill. These claims survived the trustee’s separate settlements with Artesanias and North Mill, which extinguished all the estate’s claims against North Mill while preserving Artesanias’s separate claims against it. We decline to read the Abandonment Order as relinquishing those claims only to Wilton. At some points, the Order says the claims are abandoned “to the Debtor”; at others, it says they go to both “the Debtor” and “Artesanias.” App. 470–72. But read as a whole, the Order shows that “Artesanias or the Debtor” could “recover . . . on account of the Abandoned Claims.” App. 471. It also provides that Artesanias’s recoveries would “be deducted from” its claims against the estate. Id. The only way to make sense of those clauses is to read them as allowing some of the claims to go to Artesanias. Plus, that reading returns each claim to its pre-bankruptcy owner. Until then, some claims were Wilton’s, while others belonged to Artesanias as “the prior holder.” Collier, supra, ¶ 548.02[5][a]; see id. ¶ 554.02[3]. The District Court declined to resolve that tension in the wording of the Abandonment Order. Instead, it read our decision in Cybergenics as preventing the trustee from transferring claims to Artesanias, no matter what the Order said. 607 B.R. at 209–10. But Cybergenics does not hold that trustees cannot transfer causes of action. It leaves that question open because the asset transfer at issue did not reach the creditors’ claims. Official Comm. of Unsecured Creditors of Cybergenics Corp. 18 ex rel. Cybergenics Corp. v. Chinery (In re Cybergenics Corp.), 226 F.3d 237, 244–45 (3d Cir. 2000). And elsewhere, it reaffirms that “outside of the context of bankruptcy,” claims challenging asset plundering, like Artesanias’s, “belong[ ] to [a debtor’s] creditors.” Id. at 242. So Cybergenics supports, rather than undermines, our holding: Chapter 7 trustees can abandon asset-plundering claims back to the creditors who had them before the bankruptcy. We thus hold, contrary to the District Court, that the Abandonment Order “spr[ang] back to life” and so restored Artesanias’s power to pursue its claims against North Mill and Leisawitz Heller. Collier, supra, ¶ 548.02[5][a]. To be sure, Leisawitz Heller also argues that Artesanias’s amended complaint should be dismissed under Federal Rule of Civil Procedure 12(b)(6) and Pennsylvania law. We leave it to the District Court to decide whether Artesanias raised claims on which relief can be granted.