UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
CASE NO. 02-74320
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
Factual and procedural background
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.
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
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).
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
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
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.
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.
Rule of Bankruptcy Procedure 9024 makes Federal Rule of Civil Procedure 60
applicable in bankruptcy cases. Rule
60(b) provides that relief from a judgment, order, or proceeding may be had for
several reasons, including, at subsection (2) “newly discovered evidence”
and at subsection (6) “any other reason justifying relief from the operation
of the judgment.” Fed. R. Civ. P.
60(b)(2),(6). At the time the
Trustee filed her Notice, the legal malpractice claims had no known value.
That circumstance has changed; these claims now appear to have value.
The Movants are entitled to relief from the operation of the Notice.
court therefore finds that the Movants’ 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 should be sustained and the Debtor’s Motion
to Dismiss and to Strike Motion by Howard Keith Hall, Michael Lucas and Lucas
& Hall should be overruled. An
order in conformity with this opinion will be entered separately.
Browning Brock, Esq., Trustee
J. Mueller, Esq.
M. Cantor, Esq.