Court Opinion

ID: 9493359
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:06:03.268682+00
Date Added: 2024-06-11T17:55:48.063912
License: Public Domain

WILKINS, Circuit Judge,
concurring in part and dissenting in part:
The majority affirms the order of the district court in its entirety. I agree that Sheariris capital account and the portion of the year-end profits attributable to his pre-petition work constitute property of the estate. However, I believe the bankruptcy court erred in ordering the law firm to turn over the amount of the 1996 year-end profit disbursement because the firm had already relinquished possession of the disbursement by the time this adversary proceeding was commenced. I therefore respectfully dissent from the majority opinion to the extent that it holds otherwise.
Section 542(a) of Title 11 provides:
Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
11 U.S.C.A. § 542(a) (West 1993).
Citing Boyer v. Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. (In re USA Diversified Prods., Inc.), 100 F.3d 53, 56 (7th Cir.1996) [hereinafter Diversified ], the majority concludes that § 542(a) does not require that the profits have been possessed by the law firm at the time the turnover petition was initiated in order for the statute to apply. See ante, at 356-57. Were we writing on a clean slate, I might be inclined to follow Diversified as well. However, we are not writing on a clean slate, as this court adopted a contrary interpretation of § 542(a) in Hager v. Gibson, 109 F.3d 201, 210-11 (4th Cir.1997). See Smith v. Moore, 137 F.3d 808, 821 (4th Cir.1998) (“It is well established that a decision of this Court is binding on other panels unless it is overruled by a subsequent en banc opinion of the Court or an intervening decision of the United States Supreme Court.”); 3 William L. Norton, Jr., Norton Bankruptcy Law and Practice 2d § 52:4, at 6 n. 12.5 (Supp.2000) (noting conflict between Diversified and Hager).
In Hager, a bank made a $150,000 loan to a corporation, and the loan was personally guaranteed by the corporation’s two fifty-percent stockholders, Hager and Roop. See Hager, 109 F.3d at 203. When the loan balance stood at $129,764.04, Hag-er purchased the note from the bank, using a $40,000 check drawn on the corporate account and an $89,764.04 check drawn on his personal account. See id. When the corporation subsequently filed for bankruptcy, the Trustee brought an action seeking, inter alia, the $40,000. See id. at 204. The bankruptcy court granted summary judgment to the Trustee, and the district court affirmed. See id. at 206.
This court analyzed the issue of whether the Trustee could obtain the $40,000 under the turnover statute as follows:
Hager contends that this section does not authorize recovery of the $40,000 applied in payment of the ... note because he was not, when the adversary proceeding was brought, “an entity in possession, custody, or control during the case” of that property. We agree. Present possession, either actual or constructive, of the property or its identifiable proceeds, by the person from whom its turnover is sought, is required for recovery under this section. See Maggio v. Zeitz, 333 U.S. 56, 64, 68 S.Ct. 401, 405-06, 92 L.Ed. 476 (1948) (applying pre-code judicially developed turnover principles in so holding); In re Sun Spas by Schaeffer, Inc., 122 B.R. 452, 455 (Bankr.M.D.Fla.1990); In re Gailey, Inc., 119 B.R. 504, 514 (Bankr.W.D.Pa.1990). Here, the Trustee contends that *359Hager was in possession of proceeds of the $40,000 when the adversary “proceeding was brought by virtue of his ownership of the ... note partially purchased with that sum. But, as we have previously pointed out, that misstates the nature and effects of that transaction. Rightly analyzed, the $40,000 was applied to reduce [the corporation’s] indebtedness on the note, thereby reducing the balance owing upon it, hence its value upon Hager’s then purchasing it from [the bank] with his own check for the balance remaining. Hager therefore has not possessed either the $40,000 or any proceeds from its use as a result of that transaction and may not for that reason be required to turn the sum over under § 542(a).
Id. at 210-11 (emphasis added).
As the excerpt indicates, Hager’s challenge was based entirely on the fact that he lacked possession of the $40,000 or its proceeds when the turnover proceeding was initiated, and our reversal of the district court was based solely on our application of the rule that possession of property or its proceeds at the time the adversary proceeding is initiated is required in order for the property to be subject to the turnover statute.* See id. at 210. Because the law firm here was not in possession of the disbursement or any proceeds thereof when the adversary proceeding was initiated, I would apply the rule announced in Hager and hold that the bankruptcy court erred in ordering the firm to turn over funds in the amount of the disbursement.

 The majority opinion implies that the result in Hager was based on the fact that Hager never had possession of the $40,000 or its proceeds, not on the mere fact that he did not possess the money when the turnover proceeding was initiated. See ante, at 356-57. Although we mentioned in Hager that Hager actually never possessed the $40,000 or its proceeds, we noted that fact only in the context of explaining that Hager did not possess the $40,000 or its proceeds when the turnover proceeding was initiated. See Hager, 109 F.3d at 210-11.