Court Opinion

ID: 9520285
Source: CourtListenerOpinion
Date Created: 2023-08-07 01:35:15.518904+00
Date Added: 2024-06-11T12:45:55.801774
License: Public Domain

KRESSEL, Chief Judge,
concurring.
While I agree with the majority’s conclusion that the bankruptcy court’s turnover order should be reversed, I differ entirely from the majority in my reasons and therefore write separately. First of all, I disagree with the basic rationale of the opinion that the trustee is in a better position than the debtor is to collect what was, admittedly, property of the estate. When a case is filed, the balances in the debtor’s bank accounts are property of the estate. In cases like this one, where there are outstanding checks that will be presented to the bank within days or even hours of the commencement of the case, the trustee is virtually helpless to prevent the loss of the asset. The debtor, on the other hand, is perfectly capable of preventing that loss. The debtor can make sure that there are no outstanding checks when the .case is filed by not writing checks in the period before filing, by delaying filing the petition or by writing checks far enough in advance so that they have been paid before the petition is filed. The debt- or can provide actual notice of the commencement of the case to the bank, thus, creating a duty on the part of that institution to not pay the checks when they are presented post-petition or the debtor can also stop payment on all outstanding checks when the case is commenced.13
But frankly, I consider all of this to be beside the point. This is not a question of what is the better policy, but rather, what the statute requires. As the majority indicates in its opinion, there is no doubt that the funds on deposit in the debtor’s account when the case was filed was property of the estate. This is true whether one thinks of that property as cash, a credit of some sort, or a debt owed by the bank to the debtor. Once that concession is made, then I do not think it can be gainsaid that the debtor is, at a minimum, an entity in control of that property, from the moment the case is commenced to the time the outstanding checks are presented to and paid by the bank. There may be others who are under the same obligation, including the bank itself, but the debtor is certainly one of the entities who has a statutory obligation to turn the funds over to the *788trustee. As a result of this clear statutory-mandate, I would conclude that the debtor, in fact, violated his obligations under § 542(a) by not turning over to the trustee the funds in his bank account at the moment he filed his case.
While there may be remedies against the debtor for his failure to comply with his statutory responsibility, turnover is not among them. As the Supreme Court said in Maggio v. Zeitz (In re Luma Camera Service, Inc.), 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948), in referring to a turnover proceeding,
It is essentially a proceeding for restitution rather than indemnification, with some characteristics of a proceeding in rem; the primary condition of relief is possession of existing chattels or their proceeds capable of being surrendered by the person ordered to do so. It is in no sense based on a cause of action for damages for tortious conduct such as embezzlement, misappropriation or improvident dissipation of assets.
333 U.S. at 63, 68 S.Ct. 401.
The Court goes on to say that the remedy is “appropriate only when the evidence satisfactorily establishes the existence of the property or its proceeds, and possession thereof by the defendant at the time of the proceeding.” 333 U.S. at 63-64, 68 S.Ct. 401. Thus, it is not only common sense that a person cannot be ordered to turn over property that the person does not have, the Supreme Court has clearly and unequivocally held such in Maggio. A turnover order must be supported by “proof that the property has been abstracted from the bankruptcy estate and is in the possession of the party proceeded against. It is the burden of the trustee to produce this evidence, however difficult this task may be.” Oriel v. Russell, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419 (1929).
In this case, not only did the trustee not present evidence that the debtor was in possession of the property which was the subject of the proceeding, but conceded that he was not. On this point, the trustee relies on the language “during the case.” However, I think this misconstrues the statute, both grammatically and legally and flies in the face of the court’s holding in Maggio. The language quoted imposes the turnover obligation on any party into whose possession property of the estate comes during the case, but that does not mean that that obligation survives that entity’s loss of possession.
I think the trustee is mistakenly treating § 542 as creating a recovery or damage remedy. Nowhere does the statute explicitly grant the trustee any rights. Compare this to §§ 544, 545, 547, 548, and 549, all of which explicitly grant rights to the trustee and define them. Section 550 goes on to indicate from whom the trustee may recover property. Thus, on its face, § 542 does not give the trustee a remedy or a cause of action, but rather, imposes a duty on others. The trustee is limited to enforcing that duty. Notably, § 542 is not listed in § 550 and thus is not subject to the statutory limitation that “the trustee is entitled to only a single satisfaction under subsection (a) of this section.” 11 U.S.C. § 550(d). The trustee’s interpretation of the statute would allow the trustee to obtain turnover from every single entity into whose possession a piece of property came during the case. It would also allow, for example, the trustee to obtain an order of turnover from the debtor, of a car that had been earlier repossessed by a secured creditor. He would also be entitled to a turnover order directed to every member of the family who drove the car before it was repossessed. Obviously, this cannot be the law. In fact, it is to the contrary.
Turnover orders should not be issued, or approved on appeal, merely on proof that at some past time property was in *789possession or control of the accused party ....
Maggio, 333 U.S. at 65, 68 S.Ct. 401. In the same vein, obligating the entity in possession to turnover either the property or its value is not a temporal provision, but only an alternative obligation imposed upon the entity in possession, that does not survive the entity’s loss of possession of the property.
In footnote 11, the majority dismisses Maggio by citing to an Indiana bankruptcy court’s opinion “suggesting that Maggio has been effectively overruled by the enactment of 11 U.S.C. § 542(a) ....” Not only do I not think that § 542(a) overruled Maggio, I think it is a codification of it. The Bankruptcy Act that existed before October 1, 1979, contained no turnover obligation. That obligation was judicially created and in existence upon the enactment of the Bankruptcy Reform Act of 1978, P.L. 95-598. The Act included § 542. “The normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific.” Midlantic Nat'l Bank v. N.J. Dept. of Envtl. Prot., 474 U.S. 494, 501, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986). “The court has followed this rule with particular care in construing the scope of bankruptcy codifications.” Kelly v. Robinson, 479 U.S. 36, 47, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). To the extent that the statutory language might have some ambiguity in it, the Supreme Court has told us that we are to assume that the law is the same under the Bankruptcy Code as it was under the Bankruptcy Act.
In summary, I think that while the debt- or violated his obligations under § 542(a) by allowing the transfer of funds out of his bank account after he filed his petition and while I think that the trustee undoubtedly has remedies as a result of that transfer against the debtor and others, I would hold that turnover is not one of those remedies. Requiring turnover of property or its value from the debtor (or for that matter, from any entity) who is not in possession of that property is contrary to common sense, Supreme Court precedent, and the statute itself. I therefore concur in the majority decision reversing the bankruptcy court.

. The majority raises the specter of potential criminal liability if the debtor stops payment on outstanding checks. It cites Mo. Revised. Stai. § 570.125(1) for that fear. That Missouri statute makes it a crime to fraudulently stop payment of an instrument if a person knowingly, with the purpose to defraud, stops payment on a check or draft given in payment for the receipt of goods or services. It seems to me that there is clearly no purpose to defraud if a bankruptcy debtor stops payment on a check in fulfillment of the debtor’s duties under a federal statute.