UNITED STATES BANKRUPTCY COURT

    EASTERN DISTRICT OF KENTUCKY

  PIKEVILLE DIVISION

 

 IN RE:

 ROBERT E. PARKER

 

DEBTOR                                                                              CASE NO. 02-74320

 

MEMORANDUM OPINION

 

This matter has come before the court on a Motion to Void Notice of Abandonment of Property of the Estate and Objection to the Trustee’s Proposal to Abandon Interest in Property of the Estate filed by Howard Keith Hall, Michael Lucas, and Lucas & Hall (“the Movants”).  The Debtor and the Trustee have filed responses to this motion.  The Debtor also filed a Motion to Dismiss and to Strike Motion by Howard Keith Hall, Michael Lucas and Lucas & Hall.  The matter was heard on April 13, 2005 and taken under submission for decision.  For the reasons set out below, the court will sustain the Motion to Void Notice of Abandonment of Property of the Estate and Objection to the Trustee’s Proposal to Abandon Interest in Property of the Estate and overrule the Motion to Dismiss and to Strike.

1.    Factual and procedural background

The Debtor filed his original Chapter 7 case on November 11, 2002 (he converted his case to a Chapter 13 case on May 14, 2003, but it was re-converted to Chapter 7 on July 9, 2003).  On May 27, 2003 he filed an amendment to Schedule B - Personal Property to add a possible malpractice suit of unknown value.  On June 14, 2004 the Trustee filed her Notice of Abandonment of Property of Estate (“the Notice”) giving notice to all unsecured creditors that she proposed to abandon two legal malpractice claims that she believed to be of no value to the estate.  The reason the suits were deemed to be of no value to the estate was that the major creditors of the estate did not wish to fund the cost of pursuit of the claims and did not wish to delay distribution of the assets on hand.  The Notice further provided that unless there was objection the property would be deemed abandoned when the case was closed.  No objection was filed.  The case has not been closed.

None of the Movants is a creditor in this case; none of them received notice of the abandonment.  The Movants are the individual attorneys and law firm against whom the legal malpractice claims are being asserted.  The Movants did not file their motion and objection until March 30, 2005, which was after the Debtor and his wife commenced the prosecution of their claims in state court on March 23, 2005, and almost ten months after the Trustee filed her notice. 

2.    Legal discussion

The applicable Bankruptcy Code section here is section 554 which provides at subsection (a): “After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.”  11 U.S.C. § 554(a).  The Bankruptcy Rule which implements section 554 is Federal Rule of Bankruptcy Procedure 6007.  That Rule provides at subsection (a):

Unless otherwise directed by the court, the trustee or debtor in possession shall give notice of a proposed abandonment or disposition of property to the United States trustee, all creditors, indenture trustees, and committees elected pursuant to § 1102 of the Code.  A party in interest may file and serve an objection within 15 days of the mailing of the notice, or within the time fixed by the court.  If a timely objection is made, the court shall set a hearing on notice to the United States trustee and to other entities as the court may direct.

 

Fed. R. Bankr. P. 6007(a).

First of all, the Debtor argues that because the Movants are not creditors and had no right to receive notice of the Trustee’s intent to abandon, they are not “parties in interest” and do not have standing to move to vacate the Trustee’s notice or object to her intention to abandon property.  This contention is not exactly correct.  In In re Thompson, 193 B.R. 83 (D.D.C. 1994), the district court found that judgment debtors of the bankruptcy debtor were “parties in interest” for purposes of objecting to a notice of abandonment.  The court stated:

[T]he Debtors (sic) misconceives the thrust of Rule 6007.  Subsection (a) of that Rule does not limit the power to object to a creditor; it provides that a ‘party in interest’ may object, and such objection triggers the hearing provisions.  Clearly, whatever else they may have been, [the judgment debtors] were parties in interest.  Indeed, a debtor’s possessory interest coupled with even a minute ownership interest is sufficient to generate the Bankruptcy Court’s jurisdiction, at least preliminarily.

 

Id. at 84.  The Movants could become judgment debtors of the Debtor if his state court lawsuit goes forth, and if he were to prevail.  The Debtor has cited several cases in support of his position on this issue.  One of them, In re Sweeney, 275 B.R. 730 (Bankr. W.D. Pa. 2002), deals with a state court action that was estate property. The defendants in that action objected to the trustee’s motion to reopen the bankruptcy case for the purpose of applying for authorization to employ special counsel.  This case does not address abandonment of property, nor do the other cases cited by the Debtor for the proposition that the Movants do not have standing.

The Movants’ motion and objection simply asserts that the malpractice claims remain property of the estate since the case is still open.  They state that they have offered to purchase these assets from the estate, that the claims are not of inconsequential value, and that sale to the Movants would not delay distribution to the creditors.   The basis for the Movants’ assertion is that the Trustee’s Notice provides that the “property shall be deemed abandoned when this case is closed.”  All the Debtor’s arguments in opposition assume that the Trustee’s Notice had the effect of accomplishing an abandonment once the objection period expired.  This is an incorrect assumption.  The terms of the Notice make it clear that abandonment is not effective until the case is closed.  Further, in the absence of an effective abandonment, the Debtor commenced his state court action at his own risk.

The Trustee is “the representative of the estate.”  11 U.S.C. § 323.  As such, it is her duty to maximize return to the unsecured creditors by liquidating assets of value.  In this instance, the Trustee originally proposed to abandon the legal malpractice claims as having no value to the estate.  Now, however, the Movants have offered to purchase the claims and the claims therefore have value which, unless inconsequential, should be realized by the trustee for the benefit of creditors.  It is the Trustee’s duty to take whatever steps are necessary in regard to these assets to bring all possible funds into the estate.