598 B.R. 864
6th Cir. BAP2019Background
- Debtors filed Chapter 7 in 2008; extensive related litigation followed. Church Joint Venture (CJV) obtained derivative standing to pursue Adversary Proceeding No. 15-00021 (the Personal Property Action or PPA) seeking a declaratory judgment that certain personal property at the Debtors’ residence was estate property.
- After discovery, the Chapter 7 Trustee moved to abandon the PPA, asserting the personal property was worth only about $200,000 and that liquidation would yield no benefit to unsecured creditors because of an existing IRS tax lien and administrative costs; the Blasingames joined the Trustee’s motion.
- CJV objected, arguing the Trustee should not abandon before a court determined estate ownership and contending the PPA (and supporting evidence of value) was irrelevant because CJV had derivative standing and the cause of action was no longer estate property.
- The bankruptcy court admitted Trustee exhibits (IRS proof of claim, homeowners’ insurance valuation, expert appraisal) as evidence of the Trustee’s business judgment, granted the Trustee’s motion to abandon the PPA, and then dismissed the adversary proceeding.
- CJV appealed the abandonment and dismissal orders; the Blasingames cross-appealed the earlier interlocutory order denying their motion to dismiss the Amended Complaint (failure to state a claim and statute-of-limitations defenses), which became reviewable once the final orders were appealed.
Issues
| Issue | Plaintiff's Argument (CJV) | Defendant's Argument (Trustee / Blasingames) | Held |
|---|---|---|---|
| Whether Trustee erred in abandoning the PPA under 11 U.S.C. § 554(a) | Abandonment was premature because ownership of the property had not been adjudicated; the PPA (having been brought derivatively) was not estate property and thus not subject to abandonment | Trustee exercised business judgment after discovery; likely liquidation value (~$200k) would be consumed by liens and costs so continuation would not benefit unsecured creditors | Affirmed — court found PPA was estate property and Trustee did not abuse discretion in abandoning the claim |
| Whether admission of Trustee’s exhibits at abandonment hearing was erroneous | Exhibits (proof of claim, insurance valuation, expert report) were irrelevant to whether property was estate property and hearsay/lack foundation | Exhibits were relevant to demonstrate the factual basis for Trustee’s business judgment; objections were overruled and some objections not preserved | Affirmed — admission was within the court’s discretion; no plain error shown |
| Whether Amended Complaint failed to state a claim (Rule 12(b)(6)) | Amended Complaint was conclusory and lacked specificity as to which items constituted estate property | Complaint alleged ostensible ownership under Tennessee law and pleaded enough facts to give fair notice; plausibly pleaded estate ownership under § 541 | Affirmed — pleading met Twombly/Iqbal standard; denial of motion to dismiss was proper |
| Whether PPA was time-barred under § 546 or otherwise | Reference to Tennessee ostensible ownership statute meant CJV was using Trustee’s § 544 strong-arm powers; that claim is time-barred | The action sought a declaratory determination whether property belonged to the estate (a § 541 matter), not a § 544 avoidance action; no statute of limitations bars the court from identifying estate assets | Affirmed — statute of limitations for § 544 inapplicable; no time limit on court identifying estate assets |
Key Cases Cited
- Ritzen Group, Inc. v. Jackson Masonry, LLC, 906 F.3d 494 (6th Cir. 2018) (two-step test for immediate appealability of bankruptcy orders)
- Midland Asphalt Corp. v. United States, 489 U.S. 794 (U.S. 1989) (final order appealability principles)
- Tyler v. DH Capital Mgmt., Inc., 736 F.3d 455 (6th Cir. 2013) (causes of action that could have been brought prepetition are estate property)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (application of Twombly plausibility standard)
- In re K.C. Mach. & Tool Co., 816 F.2d 238 (6th Cir. 1987) (trustee’s discretionary powers and abandonment authority)
- In re Meyers, 139 B.R. 858 (Bankr. N.D. Ohio 1992) (deference to trustee’s abandonment decision)
- In re Slack, 290 B.R. 282 (Bankr. D.N.J. 2003) (burden on party opposing abandonment to show benefit to estate)