Opinion ID: 2977277
Heading Depth: 2
Heading Rank: 2

Heading: Technical Abandonment Is Revocable

Text: The parties agree that pursuant to 11 U.S.C. § 554, the Properties were abandoned to Appellants upon the close of the bankruptcy cases because the Trustee did not administer the Properties. The issue in this case, whether technical abandonment is revocable, is an issue of first impression in this Circuit.3 2 It is not clear whether appellants also argue that LPP lacks standing under the prudential doctrine of appellate standing that applies in bankruptcy cases. This doctrine generally applies only to a party who has appealed a bankruptcy court’s order to the district court. See, e.g., In re Troutman Enters., Inc., 286 F.3d 359, 364-65 (6th Cir. 2002). In the instant cases, however, LPP did not appeal an order of the bankruptcy court, but instead filed motions in the bankruptcy court to reopen the cases and preserve the avoided liens for the benefit of the bankruptcy cases. 3 Often referred to as technical abandonment, 11 U.S.C. § 554(c) provides that “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.” At oral argument, Brinley suggested that his Property was not technically abandoned as envisioned by 11 U.S.C. § 554(c), but was instead intentionally abandoned by the Trustee pursuant to 11 U.S.C. § 554(a) or (b). The lower courts No. 07-6211 LPP Mortgage, Ltd., et al. v. Brinley, et al. Page 5 Arguing that technical abandonment is irrevocable, Appellants assign as error the bankruptcy court’s decision granting LPP’s motions to preserve the unencumbered equity in the Properties for the bankruptcy estate. Appellees argue that when the cases were reopened, the abandonments were automatically revoked and the Properties were re-vested into the property of the estates, triggering the application of 11 U.S.C. § 551, which provides that “[a]ny transfer avoided under section 522 . . . of this title, is preserved for the benefit of the estate but only with respect to property of the estate.” 11 U.S.C. § 551. Finding no mandatory or persuasive authority within this Circuit, the bankruptcy court surveyed how other courts have answered the question of whether technical abandonment is revocable. Recognizing that the circuit and district courts are split on the question of the effect of technical abandonment upon the re-opening of a bankruptcy case, the bankruptcy court discussed several approaches. In its thorough and well-reasoned opinion, the bankruptcy court found that “a number of cases recognize a general rule that abandonment is irrevocable, even if it is subsequently discovered that the abandoned property had greater value that previously believed.” The bankruptcy court noted that while a policy of absolute irrevocability “encourages due diligence by the Trustee in determining which assets to administer while also providing the debtor a sense of finality once a case is closed,” it does not take into consideration inadvertence, excusable neglect, or other equitable considerations. The bankruptcy court also rejected the bright-line rule that reopening cases automatically brings abandoned property back into the estate, finding that such a policy would “clearly thwart any policy favoring finality and give the trustee the proverbial second bite of the apple.” Believing the courts should have limited discretion in determining when technical abandonment can be revoked, the bankruptcy court eventually settled on the approach adopted by the Tenth Circuit Court of Appeals in In re Woods, 173 F.3d 770 (10th Cir. 1999). The Tenth Circuit’s approach provides that the question of whether abandonment is revocable is to be determined by applying the guidelines of Federal Rule of Civil Procedure 60(b), made applicable to bankruptcy matters by Federal Rule of Bankruptcy Procedure 9024. Woods, 173 F.3d at 776. The bankruptcy court stated: [Using a Rule 60(b) analysis] provides a certain amount of finality in that abandonments are not automatically revoked upon the re-opening of a bankruptcy case or granted without any limitations or restrictions. Safeguards are in place to protect the debtor against open ended abandonment revocations and the potential subsequent turnover of appreciated property. Finally, it requires parties to act with due diligence, and yet allows some flexibility in situations where relief is appropriate. We are persuaded as well and affirm the bankruptcy court’s reliance on Fed. R. Civ. P. 60(b) to determine when abandonment is revocable. The application of Fed. R. Civ. P. 60(b) strikes the appropriate balance between promoting finality and allowing courts to grant relief in limited circumstances. determined that Brinley’s Property was technically abandoned. We decline to revisit that factual determination, finding that it was not clearly erroneous. No. 07-6211 LPP Mortgage, Ltd., et al. v. Brinley, et al. Page 6