506 B.R. 734
Bankr. E.D. Mich.2014Background
- Debtor moved for reconsideration of two October 29, 2013 orders: denial of use of cash collateral and dismissal with 180-day bar to refiling.
- Court denied reconsideration, finding no palpable defect or valid ground under Rules 60(b) or 59(e).
- Debtor waived reconsideration arguments because raised for first time in motion for reconsideration; such arguments are generally forfeited.
- Debtor argued rents were property of the estate under §541(a)(6), despite Michigan law assignment of rents; court rejects.
- Court concludes Michigan law governs ownership of rents under assignment of rents and that post-petition rents are not property of the estate where rights are allocated to a secured creditor pre-petition.
- Courts rely on state law against a blanket §541(a)(6) preemption and reaffirm that the debtor has no right to use rents absent full payment of the CB 2011 debt.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Waiver of reconsideration arguments | Debtor argues reconsideration grounds. | Court should consider new arguments; arguments were not raised earlier. | Waived; not considered on the merits. |
| Contested questions of fact about notices | Debtor contends some tenants may not have received notices. | Debtor did not dispute service; five steps to perfect assignment were prepetition. | No contested fact; Debtor waived if raising now. |
| § 541(a)(6) applicability to rents | Rents become estate property under §541(a)(6). | State law governs ownership; §541(a)(6) does not mandate estate ownership over pre-petition rents. | §541(a)(6) does not control; state law governs ownership in this assignment context. |
| Michigan law vs. § 541(a)(6) on ownership and use of rents | Rents may be owned by debtor post-default and usable under §363. | Rents belong to mortgagee post-default; debtor cannot use without full debt satisfaction. | Rents accrue to mortgagee; no cash collateral use absent full payment; case dismissed. |
Key Cases Cited
- Riverview Trenton R.R. Co. v. DSC, Ltd., 486 F.3d 940 (6th Cir.2007) (objections raised for reconsideration are waived unless exceptional)
- Wiley v. United States, 20 F.3d 222 (6th Cir.1994) (reconsideration arguments deemed untimely/forfeited)
- Evanston Ins. Co. v. Cogswell Props., LLC, 683 F.3d 684 (6th Cir.2012) (exceptional cases when waiver would cause miscarriage of justice)
- In re Highlands of Montour Run, LLC, 450 B.R. 828 (Bankr.N.D.Ill.2011) (post-default rents and ownership under state law; restrictive to debtor’s use)
- In re Mount Pleasant Ltd. P'ship, 144 B.R. 727 (Bankr.W.D.Mich.1992) (Michigan allocation of rents; equitable interest vs. ownership)
- In re Woodmere Investors Ltd. P'ship, 178 B.R. 346 (Bankr.S.D.N.Y.1995) (state law governs rents under assignment of rents; debtor’s rights limited)
- Jason Realty, L.P., 59 F.3d 423 (3d Cir.1995) (assignment of rents under state law; §541(a)(6) does not alone make rents estate property)
- Sovereign Bank v. Schwab, 414 F.3d 450 (3d Cir.2005) (state law determines ownership of rents under assignment)
- In re Amaravathi Ltd. Partnership, 416 B.R. 618 (Bankr.S.D.Tex.2009) (argues broad §541(a)(6) reach; rejected by later authorities)
- In re Highlands of Montour Run, LLC, 450 B.R. 828 (Bankr.N.D.Ill.2011) (noting contrary view to §541(a)(6) preemption)
- First Fidelity Bank, N.A. v. Jason Realty, L.P. (In re Jason Realty, L.P.), 59 F.3d 423 (3d Cir.1995) (assignments of rents controlled by state law; no automatic estate ownership)