598 B.R. 864
6th Cir. BAP2019Background
- Debtors filed Chapter 7 in 2008; lengthy litigation followed over whether certain personal property at the Debtors’ residence belonged to the bankruptcy estate.
- Church Joint Venture (CJV) obtained derivative standing to prosecute an adversary proceeding (PPA) seeking a declaratory judgment that the personal property is estate property; the Derivative Standing Order stated the claims remained estate property.
- After discovery, the Chapter 7 Trustee moved to abandon the PPA, asserting the property’s likely liquidation value (~$200,000) would be consumed by administrative costs and an IRS tax lien, yielding no benefit to unsecured creditors.
- The Blasingames (Debtors) joined the Trustee’s abandonment motion; CJV objected, arguing abandonment was premature and that the Trustee’s evidentiary exhibits (valuation, insurance policy, IRS proof of claim) were irrelevant.
- The bankruptcy court found the PPA was estate property, that the Trustee exercised sound business judgment in abandoning the claim under 11 U.S.C. § 554(a), admitted the Trustee’s exhibits as relevant to his decisionmaking, granted abandonment, and dismissed the adversary proceeding.
- CJV appealed the abandonment and dismissal orders; the Blasingames cross-appealed the earlier denial of their motion to dismiss for failure to state a claim and as time-barred.
Issues
| Issue | Plaintiff's Argument (CJV) | Defendant's Argument (Blasingames/Trustee) | Held |
|---|---|---|---|
| Whether Trustee could abandon the PPA as estate property under § 554(a) | Trustee lacked authority because PPA (filed postpetition by CJV) was not estate property | PPA is property of the estate (claims arose from the bankruptcy case and Derivative Standing Order preserved estate ownership); Trustee may abandon if inconsequential | Court: PPA was estate property; Trustee did not abuse discretion in abandoning under § 554(a) |
| Whether Trustee’s exhibits were admissible at abandonment hearing | Exhibits (valuation, insurance policy, IRS proof of claim) were irrelevant because ownership must be decided before value | Exhibits were relevant to show the factual basis for the Trustee’s business judgment to abandon | Court: Exhibits admissible; relevant to evaluate Trustee’s business judgment; objections failed |
| Whether bankruptcy court abused discretion in approving abandonment (standard of review) | CJV: Trustee’s decision premature and speculative; abandonment would deprive estate of potential benefit | Trustee: exercised business judgment in good faith on reasonable basis; burden on opponent to show likely benefit to estate | Court: Applied business-judgment test; found no abuse of discretion; affirmed abandonment |
| Whether the Amended Complaint should have been dismissed (failure to state claim / statute of limitations) | Blasingames: complaint insufficiently specific; statute of limitations (§546) bars derivative use of strong-arm powers | CJV: complaint plausibly alleges ownership under Tennessee ostensible ownership statute, implicating §541 estate-property determination; declaratory claim not subject to §546 | Court: Denied motion to dismiss; pleading met Twombly/Iqbal; statute of limitations inapplicable to declaratory estate-property determination |
Key Cases Cited
- Midland Asphalt Corp. v. United States, 489 U.S. 794 (court of appeals jurisdiction and finality principles)
- Tyler v. DH Capital Mgmt., Inc., 736 F.3d 455 (6th Cir.) (prepetition causes of action become estate property)
- Ritzen Group, Inc. v. Jackson Masonry, LLC, 906 F.3d 494 (6th Cir.) (two-step test for immediate appealability of bankruptcy orders)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (application of Twombly pleading standard)
- First Nat’l Bank v. Lasater, 196 U.S. 115 (trustee’s discretion to abandon property)