Court Opinion

ID: 4546149
Source: CourtListenerOpinion
Date Created: 2020-07-03 00:00:57.509659+00
Date Added: 2024-06-11T08:11:43.541721
License: Public Domain

FILED
                                                               JUL 2 2020
                      ORDERED PUBLISHED                   SUSAN M. SPRAUL, CLERK
                                                            U.S. BKCY. APP. PANEL
                                                            OF THE NINTH CIRCUIT

        UNITED STATES BANKRUPTCY APPELLATE PANEL
                  OF THE NINTH CIRCUIT

In re:                                     BAP No. CC-19-1325-TaFL
JASPER STEVENS and BRENDA LOUISE
MURRAY STEVENS,                            Bk. No. 6:17-bk-15301-MH
                 Debtors.

JASPER STEVENS; BRENDA LOUISE MURRAY
STEVENS,
                 Appellants,
v.                                         OPINION
ROBERT S. WHITMORE, CHAPTER 7 TRUSTEE,
                 Appellee.

            Appeal from the United States Bankruptcy Court
                 for the Central District of California
             Mark D. Houle, Bankruptcy Judge, Presiding

                             APPEARANCES:
Appellants Jasper Stevens and Brenda Louise Murray Stevens, pro se, on
brief; Douglas A. Plazak of Reid & Hellyer, APC on brief for appellee.

Before: TAYLOR, FARIS, and LAFFERTY, Bankruptcy Judges.

TAYLOR, Bankruptcy Judge:

                                    1
                                INTRODUCTION

      Chapter 71 debtors Jasper Stevens and Brenda Louise Murray Stevens

disclosed a civil suit in their statement of financial affairs but not in their

schedule of assets and liabilities. And while they provided the chapter 7

trustee with information relevant to the lawsuit, they never amended their

schedules. The lawsuit and its claims (collectively, the “Claims”) were not

administered before their chapter 7 case closed. Later, however, the

bankruptcy court reopened the case and, at the request of the Trustee,

approved a settlement that resolved them. Debtors appeal. They argue that

the Trustee could not compromise the Claims because he technically

abandoned them under § 554(c). We disagree, and we AFFIRM.

                                       FACTS

      When Debtors filed their chapter 7 case, their lawsuit against Ocwen

Loan Servicing, LLC2 was pending. But, Debtors failed to disclose and

value the Claims in their schedule of assets and liabilities. Instead, they

listed the lawsuit as a pending action in their statement of financial affairs,

discussed it with the Trustee, and provided copies of the pleadings to the

Trustee. Despite this disclosure, the Trustee did not administer it through

      1
        Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
      2
       Ocwen Loan Servicing, LLC and its successor by merger, PHH Mortgage
Corporation, are collectively referred to herein as “Ocwen.”

                                           2
sale or compromise. Instead, he issued a no asset report, which certified

that the estate had been fully administered and reported $0.00 of

abandoned assets. The bankruptcy court then discharged the Trustee and

closed the case.

       Debtors continued to prosecute the lawsuit. But as a summary

judgment hearing approached, Ocwen proposed a settlement to the

Trustee, who then withdrew the no asset report, obtained case reopening,

and filed a settlement approval motion (“Motion”). Debtors opposed,

arguing that the Trustee lacked settlement authority because, under

§ 554(c), he had abandoned the Claims on case closure.3

       After hearing the arguments of the parties, the bankruptcy court

determined that the Claims had not been abandoned and approved the

settlement. Debtors timely appealed.

                                    JURISDICTION

       The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.

       3
        Debtors also argued that approval of the settlement was not warranted under
the factors set forth in Martin v. Kane (In re A & C Properties), 784 F.2d 1377, 1381 (9th
Cir. 1986), and used to determine the propriety of trustee compromises. Because they
did not raise this issue on appeal, we need not, and do not, address it.

                                              3
                                       ISSUE4

      Did the bankruptcy court err in determining that the Claims had not

been abandoned under § 554(c)?

                            STANDARD OF REVIEW

      We review de novo the bankruptcy court’s interpretation of the

Bankruptcy Code and its determination that an estate asset was

abandoned. Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 764 F.3d 1168,

1173 (9th Cir. 2014); Killebrew v. Brewer (In re Killebrew), 888 F.2d 1516, 1519

(5th Cir. 1989).

                                   DISCUSSION

      Debtors do not dispute that the Claims became property of their

bankruptcy estate when they filed their chapter 7 petition or that the

Trustee became the sole party with standing to prosecute the lawsuit,

unless and until he abandoned the Claims under § 554. See Turner v. Cook,

362 F.3d 1219, 1225-26 (9th Cir. 2004); CBS, Inc. v. Folks (In re Folks), 211 B.R.
378, 388 (9th Cir. BAP 1997). They contend, however, that the bankruptcy

court abused its discretion in approving the compromise because the

      4
        Debtors also contend that the bankruptcy court abused its discretion in
approving an application to employ bankruptcy counsel filed by the Trustee. We do not
address their contention because they failed to: (1) oppose the application, (2) file a
notice of appeal of the employment order, and (3) argue, with citations to applicable
authorities and portions of the record, why the bankruptcy court abused its discretion.
Rules 8003(a)(1) and 8014(a)(8); Mano–Y & M, Ltd. v. Field (In re Mortg. Store, Inc.),
773 F.3d 990, 998 (9th Cir. 2014).

                                           4
Claims were technically abandoned before the Trustee filed the Motion. We

disagree.

      Abandonment of an asset can occur in two ways. First, under § 554(a)

and (b), after notice and a hearing, a trustee may voluntarily abandon or

may be compelled to abandon specific property of the estate that is

“burdensome” or “of inconsequential value and benefit to the estate.” And

second, as relevant to this appeal, under § 554(c), “any property scheduled

under section 521(a)(1) of this title [and] not otherwise administered at the

time of the closing of a case is abandoned to the debtor . . . .” This type of

abandonment is commonly referred to as a “technical abandonment.”

Vasquez v. Adair (In re Adair), 253 B.R. 85, 88 (9th Cir. BAP 2000). Here, the

sole issue is whether Debtors properly scheduled the Claims within the

meaning of “scheduled” in § 554(c).

      Section 521(a)(1)(B) requires, in pertinent part, that the debtor file “a

schedule of assets and liabilities” and “a statement of the debtor’s financial

affairs.” Debtors submit that the term “property scheduled under section

521(a)(1),” as used in § 554(c), refers to property disclosed in the schedule

of assets and liabilities (“Schedules”) or the statement of financial affairs

("SOFA"). The Trustee disagrees and argues that the phrase means only

property disclosed in the Schedules.

      The Ninth Circuit has yet to rule on this issue, but the majority of

courts considering the issue have taken the strict approach advanced by the

                                        5
Trustee. See, e.g., Ashmore v. CGI Grp. Inc., No. 11 Civ. 8611 (AT), 2016 WL
2865153, at *4 (S.D.N.Y. May 9, 2016), vacated and remanded on other grounds,

923 F.3d 260 (2d Cir. 2019); Swindle v. Fossey (In re Fossey), 119 B.R. 268, 272

(D. Utah 1990); In re Winburn, 167 B.R. 673, 676 (Bankr. N.D. Fla. 1993); In re

McCoy, 139 B.R. 430, 431-32 (Bankr. S.D. Ohio 1991); Tavormina v. Harris (In

re Harris), 32 B.R. 125, 127 (Bankr. S.D. Fla. 1983); In re Medley, 29 B.R. 84,

86-87 (Bankr. M.D. Tenn. 1983).

      And while we have not decided the issue under facts that precisely

align with those in this appeal, we have also espoused the majority view.

In Orton v. Hoffman (In re Kayne), 453 B.R. 372 (9th Cir. BAP 2011), we held,

in a case involving sanctions under Rule 9011 and § 707(b)(4)(D), that

listing an action on promissory note in the SOFA did not result in its

abandonment because “[m]entioning an asset in the statement of affairs is

not the same as scheduling it.” Id. at 384 (quoting In re Kayne, No. 09-12470,

2010 WL 2757346, at *2 n.2 (Bankr. N.D. Cal. July 11, 2010), aff'd, 453 B.R.
372 (9th Cir. BAP 2011)). And relying on Kayne, in Pretscher-Johnson v.

Aurora Bank, FSB (In re Pretscher-Johnson), BAP No. NC-16-1180-BTaF, 2017
WL 2779977, *5 (9th Cir. BAP May 31, 2017), we noted a lack of sufficient

notice to the trustee or creditors of unscheduled claims and held that listing

a quiet title action without a value in the SOFA was insufficient to effect an

abandonment on case closure.

      Further, we determined in Pace v. Battley (In re Pace), 146 B.R. 562, 566

                                         6
(9th Cir. BAP 1992), aff’d, 17 F.3d 395 (9th Cir. 1994), a case discussing

express abandonment under § 554(a), that technical abandonment requires

proper scheduling of an asset, and “it is not sufficient that the trustee knew

of the property’s existence at the time that the case was closed.” Id. at 566.

      But a minority view exists; some courts have held that assets listed in

the SOFA are scheduled. See, e.g., United States ex. rel. Fortenberry v.

Holloway Grp., Inc., 515 B.R. 827, 829 (W.D. Okla. 2014); West v. Jeppesen (In

re Krachun), No. 15-2016, 2015 WL 4910241, at *6 (Bankr. D. Utah Aug. 14,

2015); In re Hill, 195 B.R. 147, 150-51 (Bankr. D.N.M. 1996).

      And under the unique facts of one case, we questioned a rigid

technical abandonment prerequisite that assets be included in the

Schedules. See Nasseri v. Tadayon (In re Tadayon), BAP No. NV-

18-1119-BKuTa, 2019 WL 1923044, at *6 (9th Cir. BAP Apr. 29, 2019). In

Tadayon, however, the trustee, among things, provided a notice of

abandonment that included a detailed description of the unscheduled asset

as well as a more general no asset report but, for unknown reasons, failed

to present a proposed order approving his abandonment motion. Id. at *6.

Thus, it is best read as a case involving express abandonment under

§ 554(a). Accordingly, we do not find it persuasive in a case not involving

its highly unusual factual circumstances.5

      5
          In Tadayon, we relied heavily on In re Hill. In that case, the notice of
                                                                                  (continued...)

                                                7
      Rather, we follow the majority’s plain language reading of § 554(c).

That is, the word “scheduled” in § 554(c) refers only to assets listed in a

debtor’s Schedules.

      On its face, § 554(c) provides that an asset must be “scheduled under

section 521(a)(1)” to be technically abandoned. If Congress intended the

“scheduled” assets referenced in § 554(c) to include assets listed only

obliquely in the SOFA, then it could have, and should have, drafted

§ 554(c) to refer to assets “listed or scheduled under section 52l(a)(1).” This

view is supported by a review of another Code provision where Congress

referred to a debt “neither listed nor scheduled under section 521(a)(1).”

See § 523(a)(3). If we read “scheduled” in § 554(c) as synonymous with

“listed,” as Debtors urge, then “listed” in § 523(a)(3) becomes

impermissibly superfluous. See Conn. Nat’l Bank v. Germain, 503 U.S. 249,

253 (1992) (“[C]ourts should disfavor interpretations of statutes that render

language superfluous.”). And if we adopt the minority interpretation, we

also run afoul of the canon of statutory interpretation providing that

“where Congress includes particular language in one section of a statute

but omits it in another section of the same Act, it is generally presumed

that Congress acts intentionally and purposely in the disparate inclusion or

      5
         (...continued)
abandonment abandoned “any and all assets listed on the statements and schedules filed
in this case . . . .” 195 B.R. at 148 (emphasis added). Again, that case, in essence,
involved an express abandonment of assets listed in the SOFA.

                                          8
exclusion.” United States v. Wahid, 614 F.3d 1009, 1014 (9th Cir. 2010)

(quoting APL Co. Pte., Ltd. v. UK Aerosols Ltd., 582 F.3d 947, 952 (9th Cir.

2009).

      Moreover, this narrow reading of § 554(c) is consistent with sound

bankruptcy policies and reasonable expectations for a debtor’s

performance of statutory duties.

      First, it encourages debtors to fulfill the critical § 521(a)(1) duty to

carefully, completely, and accurately disclose all their property in their

Schedule A/B under penalty of perjury. See Cusano v. Klein, 264 F.3d 936,

946 (9th Cir. 2001). Accurate Schedules apprise all parties to the case of the

debtor’s financial situation, including the value of the debtor’s assets. The

SOFA does not similarly require valuation of assets. The bankruptcy

system cannot function fairly, effectively, and efficiently unless creditors

and trustees can count on debtors to scrupulously comply with their duty

to disclose and value assets in the Schedules. See In re Medley, 29 B.R. at 87

(Sections 521 and 554 “act in concert to relieve the trustee from the burden

of conducting a rigorous search of the debtor’s records to discover assets of

the estate by providing him with a ready schedule of the debtor’s property

interests.”).

      Second, requiring debtors to properly disclose assets in the Schedules

is not an undue burden. A debtor has a continuing opportunity to get the

Schedules right before case closure; Rule 1009(a) permits a debtor to amend

                                        9
the Schedules “as a matter of course at any time before the case is closed.”

Thus, a mere mistake or omission can be corrected; our statutory

interpretation does not bar technical abandonment in a procrustean

fashion.

      Third, this requirement advances the goal of a fully transparent

bankruptcy process. As mentioned, it assists a trustee in the performance of

critical statutory duties. But, the bankruptcy court and all creditors also

have a right to full knowledge of a debtor’s assets and a complete

understanding of technical abandonment risk in a case. Thus, a trustee’s

acquisition of asset information is not a sufficient substitute for inclusion in

the Schedules because the bankruptcy court and creditors remain in the

dark. Appropriately, the Code does not require the trustee to make

disclosures where the debtor fails in his statutory duty to schedule his

assets.

      Moreover, a rule that a trustee’s knowledge of an asset or its casual

inclusion in the SOFA or both could suffice as the basis for technical

abandonment would foster litigation. In the place of a bright line rule that

assets must be scheduled before technical abandonment occurs,

bankruptcy courts would be required to determine whether the unique

facts of a case justify technical abandonment. The inefficiency of this result

is clear.

      For all these reasons, we hold that technical abandonment requires

                                       10
inclusion of an asset in the Schedules. Thus, the bankruptcy court did not

err in concluding that the Claims were not technically abandoned. And,

accordingly, it did not abuse its discretion in approving the compromise.

                              CONCLUSION

     Based on the foregoing, we AFFIRM.

                                     11