Court Opinion

ID: 2648830
Source: CourtListenerOpinion
Date Created: 2014-01-10 18:00:08.200729+00
Date Added: 2024-06-11T09:09:12.268183
License: Public Domain

FOR PUBLICATION

      UNITED STATES COURT OF APPEALS
           FOR THE NINTH CIRCUIT

 BRIAN DAVID SHAPIRO, Trustee of                       No. 11-16019
 the bankruptcy estate of Barbara
 Melinda Henson,                                         D.C. No.
                            Appellant,                2:10-cv-00726-
                                                        ECR-GWF
                       v.

 BARBARA MELINDA HENSON,                                 OPINION
                      Appellee.

         Appeal from the United States District Court
                  for the District of Nevada
      Edward C. Reed, Jr., Senior District Judge, Presiding

                    Submitted October 8, 2013*
                     San Francisco, California

                        Filed January 9, 2014

Before: N. Randy Smith and Jacqueline H. Nguyen, Circuit
   Judges, and Gordon J. Quist, Senior District Judge.**

                   Opinion by Judge N.R. Smith

  *
    The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
  **
     The Honorable Gordon J. Quist, Senior District Judge for the U.S.
District Court for the Western District of Michigan, sitting by designation.
2                       SHAPIRO V. HENSON

                           SUMMARY***

                             Bankruptcy

    The panel reversed the district court’s decision affirming
the denial of a bankruptcy trustee’s motion for turnover of
property pursuant to 11 U.S.C. § 542(a).

    Referring to the plain language of § 542(a), pre-
Bankruptcy Code turnover practice, and the context of other
Code provisions, and declining to follow the Eighth Circuit,
the panel held that the trustee’s turnover power is not
restricted to property of the estate at the time the motion for
turnover is filed. The panel remanded the case for further
proceedings.

                             COUNSEL

Brian D. Shapiro, Law Office of Brian D. Shapiro, LLC, Las
Vegas, Nevada, for Appellant.

Tara Twomey, National Consumer Bankruptcy Rights Center,
San Jose, California, for Amicus Curiae National Association
of Consumer Bankruptcy Attorneys.

  ***
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                    SHAPIRO V. HENSON                        3

                         OPINION

N.R. SMITH, Circuit Judge:

    Bankruptcy Code § 542(a) grants a bankruptcy trustee the
power to recover property of the debtor’s estate or such
property’s value. With this power, the trustee may seek
recovery from entities having “possession, custody, or
control” of the property sought, whether the property was in
the entity’s possession, custody, or control at the time the
motion was filed or at any other point during the pendency of
the bankruptcy case. Therefore, we reverse the district court’s
decision affirming denial of bankruptcy trustee Brian
Shapiro’s motion for turnover and remand for further
proceedings.

         FACTS & PROCEDURAL HISTORY

    On August 7, 2009, Barbara Henson filed a voluntary
Chapter 7 bankruptcy petition. At the time she filed
bankruptcy, Henson had a Bank of America checking account
with $6,955.19 therein. Henson had written several checks
drawn on this account before filing for bankruptcy, but the
bank did not honor those checks until after she filed her
petition.

    On October 2, 2009, Brian Shapiro (the bankruptcy
trustee appointed for Henson’s case) sent Henson a letter
demanding that Henson turn over the funds that had been in
her bank account. On November 3, 2009, Henson denied
being in possession of the funds and indicated that she would
4                       SHAPIRO V. HENSON

not comply.1 On November 11, 2009, Shapiro responded by
filing a motion for turnover under § 542(a) against Henson to
recover $6,155.19 of her petition-date account balance.2

    The bankruptcy court denied the motion, because Henson
did not have possession or control of the funds at the time
Shapiro filed the motion for turnover. Shapiro appealed to the
district court. The district court affirmed, and Shapiro then
timely filed the instant appeal.

   While this appeal was pending, the National Association
of Consumer Bankruptcy Attorneys (“NACBA”) filed a
motion seeking leave to file a brief as amicus curiae in
support of Henson, including with the motion its proposed
amicus brief. We GRANT the NACBA’s motion.

                   STANDARD OF REVIEW

    We review the district court’s decision affirming the
bankruptcy court de novo. Barclay v. Mackenzie (In re AFI
Holding, Inc.), 525 F.3d 700, 702 (9th Cir. 2008). We also
review a bankruptcy court’s interpretation of the Bankruptcy
Code de novo. Tighe v. Celebrity Home Entm’t, Inc. (In re

  1
    Henson does not dispute that the amount in her checking account at the
time she filed her bankruptcy petition was part of the bankruptcy estate.
 2
   Recognizing that $800.00 of the checking account balance was exempt,
Shapiro initially sought to turn over the account balance less the exempt
$800.00. Shapiro later discovered that Henson had transferred $3,239.00
from her checking account to her bankruptcy counsel. Thus, Shapiro filed
a separate action against Henson’s attorney to recover funds from that
transfer and reduced the amount he sought to recover from Henson by
$3,239.00, making the final amount Shapiro sought $2,916.19.
                     SHAPIRO V. HENSON                         5

Celebrity Home Entm’t, Inc.), 210 F.3d 995, 997 (9th Cir.
2000).

                        DISCUSSION

    The question presented in this case is one of first
impression in this circuit: whether a trustee’s turnover power
is solely restricted to recovering bankruptcy estate property,
or its value, from entities having “possession, custody, or
control” (collectively “possession”) of such property at the
time the motion for turnover is filed. The plain language of
§ 542(a), pre-Code practice, and the context of other Code
provisions indicate that the trustee’s turnover power is not
restricted to property of the estate at the time the motion is
filed.

    A. Section 542(a)’s Text

     The “starting point for interpreting a statute is the
language of the statute itself.” United States v. Buckland,
289 F.3d 558, 564 (9th Cir. 2002) (quoting Hallstrom v.
Tillamook Cnty., 493 U.S. 20, 25 (1989) (internal quotation
marks omitted)). Section 542(a) states in relevant part, “[A]n
entity . . . in possession, custody, or control, during the case,
of [property of the estate, or exempt property], 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. § 542(a). Two key
phrases evidence that § 542(a) allows a turnover motion to be
brought against the entity at any time during the pendency of
the bankruptcy case, even if the entity no longer possesses or
has custody or control over the property, at the time the
motion is filed.
6                     SHAPIRO V. HENSON

        1. “During the Case”

    First, “during the case” means that the trustee may bring
a motion for turnover against an entity who has possession of
the property of the estate, or had possession of that property
at some point during the bankruptcy case. Section 542(a) does
not include any words that hint at a narrower time of
possession, and there is certainly no reference to the time of
the motion’s filing. See id. Rather, the statute only specifies
that an entity “in possession, custody, or control, during the
case” of estate property must turn it over to the trustee. Id.

    Nor do we infer from this silence, with respect to whether
an entity’s obligation to turn over property continues after
possession ceases, a requirement of present possession at the
time of the motion. See United States v. Wells, 519 U.S. 482,
496 (1997) (“[I]t is at best treacherous to find in
congressional silence alone the adoption of a controlling rule
of law.” (quoting NLRB v. Plasters’ Local Union No. 9, 404
U.S. 116, 129–30 (1971) (internal quotation marks omitted)).

    Moreover, other courts agree with this interpretation of
“during the case” within the context of § 542(a). See, e.g.,
Beaman v. Vandeventer Black, LLP (In re Shearin), 224 F.3d
353, 356 (4th Cir. 2000) (“We construe the language ‘during
the case’ to refer to the entire bankruptcy case. . . .”) (citation
omitted); Newman v. Schwartzer (In re Newman), 487 B.R.
193, 199–200 (B.A.P. 9th Cir. 2013)3 (finding “debtor [had]
‘possession, custody, or control’ of the property ‘during the

    3
   Although “decisions by the BAP are not binding on this court,” BAP
opinions may be “persuasive and aid [the panel in its] reading of the
Bankruptcy Code.” Sigma Micro Corp. v. Healthcentral.com (In re
Healthcentral.com), 504 F.3d 775, 784 n.3 (9th Cir. 2007).
                     SHAPIRO V. HENSON                        7

case’” although debtor had spent the tax refund at issue by the
time the turnover motion was filed).

       2. “Or the Value of Such Property”

    Second, the phrase “or the value of such property”
indicates that the entity need not be in possession of the
property itself when the trustee files the motion for turnover.
See 11 U.S.C. § 542(a). Because § 542(a) permits a trustee to
recover “the value of [the] property,” instead of just the
property itself, possession cannot be required in order to bring
the motion for turnover. This phrase shows that the trustee
has a remedy in a case where an entity was “in possession” of
estate property at some point “during the case,” but lost
possession of that property by the time the trustee brought the
motion for turnover. In such a case, the trustee may recover
the “value of such property” from the entity previously in
possession.

    Again, other courts espouse this view. “If the statute were
read to require current possession of the property, the
language allowing a trustee to alternatively recover ‘the value
of the property’ would become superfluous, as the trustee
could only recover the property itself.” In re Newman, 487
B.R. at 200–01 (quoting Jubber v. Ruiz (In re Ruiz), 455 B.R.
745, 751 (B.A.P. 10th Cir. 2011)) (internal quotation marks
and alterations omitted); see also Boyer v. Carlton, Fields,
Ward, Emmanuel, Smith & Cutler, P.A. (In re USA
Diversified Prods., Inc.), 100 F.3d 53, 55–57 (7th Cir. 1996)
(stating that § 542(a) “requires the delivery of the property or
the value of the property,” and finding that a law firm had to
turn over the amount of funds it released to debtor between
the time of the bankruptcy petition’s filing and the turnover
motion’s filing) (emphasis in original).
8                       SHAPIRO V. HENSON

    While it has been argued that including the phrase “the
value of such property” merely continues the pre-Code
practice of permitting the trustee to bring a turnover action
against someone in possession of the proceeds4 of property of
the estate, see Brown v. Pyatt (In re Pyatt), 486 F.3d 423, 429
(8th Cir. 2007), this argument has little force. Congress’s
“decision to use one word over another in drafting a statute is
material.” S.E.C. v. McCarthy, 322 F.3d 650, 656 (9th Cir.
2003). We “must presume that Congress intended a different
meaning when it uses different words in connection with the
same subject.” Ariz. Health Care Cost Containment Sys. v.
McClellan, 508 F.3d 1243, 1250 (9th Cir. 2007). Here, the
Code drafters used the term “value of such property” in
§ 542(a), not the term “proceeds.” See 11 U.S.C. § 542(a).
Yet in the immediately preceding section, the drafters used
the term “proceeds.” See id. § 541(a)(6). Therefore, Congress
did not intend § 542(a)’s language “value of such property”
to mean bankruptcy estate property “proceeds.” See
McClellan, 508 F.3d at 1250.

    In sum, the phrases “or the value of such property” and
“during the case” evidence the trustee’s power to move for
turnover against an entity that does not have possession,
custody, or control of property of the estate at the time the
motion is filed.

    B. Pre-Code Practice

    Our reading of § 542(a) is buttressed by pre-Code
turnover practice, which, when viewed as a whole, did not

 4
   “Proceeds” is a term of art in the context of secured transactions. See
U.C.C. § 9-102(a)(64).
                     SHAPIRO V. HENSON                        9

require an entity to have possession of the property the trustee
sought through turnover at the time the motion was filed.

        1. Background

    Before the Code’s enactment, a trustee had two methods
of recovering estate property from an entity who had
possession of it at one time. See Boyer v. Davis (In re U.S.A.
Diversified Prods., Inc.), 193 B.R. 868, 875–79 (Bankr. N.D.
Ind. 1995). The trustee could pursue recovery through either
a summary proceeding or a plenary proceeding. See id. at
875. A summary proceeding was a special proceeding
conducted by the bankruptcy referee, whereas a plenary
proceeding resembled a civil trial. Id. at 876.

    The product of a summary proceeding was typically an
order to turn over the estate’s property to the trustee. Id.
These orders were usually enforced via motions for contempt.
Id. By contrast, the product of the plenary proceeding would
be a judgment, which the trustee would have to enforce the
same as any other court judgment. Id.

        2. Analysis

     This dual-method system for turnover is significant,
because possession at the time of a plenary turnover motion’s
filing was not required under pre-Code law, even though
present possession in a summary proceeding was. Compare
Coleman v. Murdock (In re Welded Constr., Inc.), 339 F.2d
593, 594 (6th Cir. 1964) (per curiam) (holding that a plenary,
not a summary, proceeding was appropriate when the entity
from which the trustee sought turnover no longer had
possession of the funds sought), with Maggio v. Zeitz (In re
Luma Camera Serv., Inc.), 333 U.S. 56, 63–64 (1948)
10                   SHAPIRO V. HENSON

(requiring in a summary proceeding “the existence of the
property or its proceeds, and possession thereof by the
defendant at the time of the proceeding”). This difference in
requirements turned on the remedy sought. Because a motion
for contempt was the usual means of enforcing summary
turnover, present possession was required so that an entity
could not be held in contempt for failing to do the
impossible—turn over property it no longer possessed. In re
Luma Camera Serv., Inc., 333 U.S. at 59–60.

    On the other hand, because plenary proceedings were not
enforced via motions for contempt, there was no need for the
protection the present possession requirement provided. See
generally In re U.S.A. Diversified Prods. Inc., 193 B.R. at
876. Further, a plenary proceeding was available should a
summary proceeding fail for lack of present possession. See,
e.g., In re Welded Constr., Inc., 339 F.2d at 594; In re U.S.A.
Diversified Prods. Inc., 193 B.R. at 878 (“[T]he inability to
obtain summary turnover merely required the trustee to resort
to a civil action in a court of appropriate jurisdiction. It never
absolved the party who was once in possession of property of
the estate of all liability.”). Thus, present possession was not
a requirement of the turnover power itself but only a
prerequisite to seeking turnover through a particular means.

     C. Other Provisions of the Bankruptcy Code

    Finally, practical considerations in the broader context of
the bankruptcy trustee’s powers mandate this result. If the
trustee can only move for turnover against an entity currently
in possession of the property, that entity could avoid liability
under § 542(a) simply by transferring the property. In re USA
Diversified Prods. Inc., 100 F.3d at 56. Permitting this simple
means of frustrating the trustee’s turnover motion “is not
                      SHAPIRO V. HENSON                         11

what the statute says and can’t be what it means.” Id. (citation
omitted).

    Moreover, should a present possession requirement be
read into § 542(a), the trustee’s power to avoid post-petition
transfers of bankruptcy estate property would not adequately
compensate for the trustee’s inability to pursue entities no
longer possessing the property sought through turnover. But
see In re Pyatt, 486 F.3d at 429 (citing 11 U.S.C. § 549). The
trustee’s avoiding powers do not allow the trustee to pursue
the initial transferor in such a transaction for the value of the
property transferred. See § 550(a) (“[T]o the extent that a
transfer is avoided . . . the trustee may recover, for the benefit
of the estate, the property transferred, or . . . the value of such
property from (1) the initial transferee . . . or (2) any
immediate or mediate transferee. . . .”) (emphases added).
Therefore, § 542(a) fills a gap in the trustee’s avoiding
powers by permitting him/her to proceed against someone
who had possession of property of the estate at the outset of
the bankruptcy case and subsequently transfers it.

    D. The Eighth Circuit’s position

    Only the Eighth Circuit requires an entity to have
“possession, custody, or control” of the subject property at
the time the bankruptcy trustee moves for turnover. To reach
this conclusion, the Eighth Circuit relies on (1) the Code’s
double recovery prohibition provision’s omission of § 542,
(2) § 542’s failure to “specify whether an entity which lacks
control [at the time of the motion’s filing] may properly be
subject to a motion to compel turnover,” In re Pyatt, 486 F.3d
at 428, and (3) the pre-Code present possession requirement
in a summary turnover proceeding, id. at 428–29 (citing In re
Luma Camera Serv., Inc., 333 U.S. at 63–64).
12                   SHAPIRO V. HENSON

    These three bases for inferring a present possession
requirement in § 542 do not justify the Eighth Circuit’s
position. With respect to the first basis, the double recovery
provision references the trustee’s avoiding powers, so the
omission of § 542 in its list of avoiding power sections is not
particularly meaningful. In re Ruiz, 455 B.R. at 752.
Assuming a trustee would try to recover the same property
twice, “the party from whom the second recovery was sought
could raise as an equitable defense to turnover that the bank
account constituted effectively a single asset, and the trustee
should not be able to recover the same asset twice.” In re
Newman, 487 B.R. at 201 (quoting In re Ruiz, 455 B.R. at
752) (internal quotation marks omitted).

    With respect to the second basis, “it is at best treacherous
to find in congressional silence alone the adoption of a
controlling rule of law.” Wells, 519 U.S. at 496 (quoting
Hallstrom, 493 U.S. at 25) (internal quotation marks omitted).
And, here, the Eighth Circuit is relying on “congressional
silence alone,” because the Eighth Circuit’s third basis is an
inaccurate interpretation of In re Luma Camera Service,
Inc.’s holding and significance in pre-Code practice.

    In re Luma Camera Service, Inc. did not generally require
present possession in pre-Code turnover proceedings. As
discussed above, In re Luma Camera Service, Inc. only held
that present possession was required in a summary turnover
proceeding to protect an entity from being held in contempt
for failing to turn over property it no longer possessed. See
333 U.S. at 59–60.

     Thus, we are not persuaded by In re Pyatt’s reasoning.
                    SHAPIRO V. HENSON                      13

                      CONCLUSION

    Section 542(a)’s plain language, pre-Code practice, and
other Code provisions compel our holding that a trustee may
seek turnover from an entity that had “possession, custody, or
control” of the subject property during the bankruptcy case
whether or not the entity had “possession, custody, or
control” at the time the turnover motion is filed.

   Accordingly, we REVERSE the district court’s decision
and REMAND for further proceedings consistent with this
opinion.