Rosen v. Gemini Title & Escrow, LLC et al

Filing 10

MEMORANDUM OPINION (c/s to Judge Catliota 3/15/13 sat). Signed by Chief Judge Deborah K. Chasanow on 3/15/13. (sat, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
IN RE: MINH VU HOANG AND
THANH HOANG
______________________________
GARY A. ROSEN, Trustee
Appellant

:
:
:

v.

:

GEMINI TITLE & ESCROW, LLC,
et al.
Appellees

Civil Action No. DKC 12-0593

:
:

MEMORANDUM OPINION
Gary A. Rosen, the chapter 7 trustee for the bankruptcy
estate of Minh Vu Hoang, appeals from a final judgment in an
adversary proceeding entered by United States Bankruptcy Judge
Thomas J. Catliota on January 23, 2012.
legal

arguments

are

adequately

Because the facts and

presented

in

the

briefs

and

record, oral argument is deemed unnecessary.

See Fed.R.Bankr.P.

8012;

that

Local

Rule

105.6.

For

the

reasons

follow,

the

judgment of the bankruptcy court will be reversed and the case
remanded for further proceedings.
I.

Background
On May 10, 2005, Debtor Minh Vu Hoang filed a voluntary

petition under chapter 11 of the bankruptcy code in the United
States

Bankruptcy

Court

for

the

District

of

Maryland.

She

served as debtor-in-possession from the date of filing until
Appellant Gary A. Rosen was appointed chapter 11 trustee on

August 31, 2005.

The case was converted to chapter 7 on October

28, 2005, and Appellant was named chapter 7 trustee.
At some point thereafter, Appellant learned that Debtor had
been

engaged,

both

“flipping” scheme.

pre

and

post-petition,

in

a

real

estate

Typically, she would purchase a distressed

property at a foreclosure sale; title that property in the name
of a sham business entity under her control; and rehabilitate
and sell the property for substantial profit, often transferring
the proceeds to a different entity through which she would then
purchase another property.

This process, or something similar

to it, was repeated many times; Debtor used literally hundreds
of

sham

business

entities

to

“flip”

hundreds

of

properties.

Unfortunately, she failed to report this income to the IRS and
her interest in the business entities and associated properties
was not reflected in her bankruptcy schedules or statement of
financial

affairs.

On

April

11,

2007,

she

was

criminally

indicted on charges related to tax and bankruptcy fraud.1
In
concealed

an
by

attempt
Debtor,

to

recover

Appellant

estate
commenced

assets

fraudulently

numerous

adversary

proceedings within the main bankruptcy case, including the case
from which the instant appeal arises.

1

On December 18, 2009, he

On October 13, 2010, Debtor was convicted, upon her guilty
plea, of conspiracy to defraud an agency of the United States,
in violation of 18 U.S.C. § 371. She was sentenced to a term of
imprisonment of sixty months, which she is presently serving.
2

filed

suit

(“Gemini”),

against
the

Law

Appellees
Offices

Gemini

of

Craig

Title
A.

&

Escrow,

Parker,

LLC

LLC
(“Law

Offices”), and Craig A. Parker (“Parker”), related to their role
in ten post-petition transactions while Mrs. Hoang was serving
as debtor-in-possession.

The complaint recites:

Minh Vu Hoang’s asset-concealment scheme
continued
even
after
she
went
into
bankruptcy.
Over a period of roughly three
months, and without knowledge or approval of
the Court, she sold 10 properties that were
titled in the name of her sham entities.
Gemini Title handled the closings on these
sales, and it did so with knowledge that
Minh Vu Hoang had filed for bankruptcy.
Gemini Title received the proceeds of those
sales, which constituted property of the
bankruptcy estate.
And instead of turning
them over to the estate, Parker (and his
LLC) distributed them to various third
parties on Minh Vu Hoang’s instructions.
Those funds are now lost to the estate.
(ECF

No.

1-24

¶

4).2

The

original

complaint

raised

twelve

counts, including, as relevant here, two counts seeking turnover
of estate property pursuant to 11 U.S.C. § 542(a).3

2

Parker’s liability is premised upon his role as a
principal of both Gemini and Law Offices. The liability of Law
Offices is based on its opening and maintaining an Interest Only
Lawyer’s Trust Account (“IOLTA”) for the benefit of Debtor. Two
of the properties at issue were allegedly purchased by Debtor,
post-petition, with funds from this account. Other allegations
suggest that the proceeds from the property sales were deposited
into this account.
3

For ease of exposition, all further reference to
provisions of the bankruptcy code will be to section number
only.
These sections are all found in Title 11 of the United
States Code.
3

In

response,

Appellees

moved

to

dismiss

the

complaint,

pursuant to Fed.R.Civ.P. 12(b)(6) and Fed.R.Bankr.P. 7012(b),
arguing, inter alia, that the turnover counts were time-barred:
In Counts 1 and 2, Trustee seeks to
recover
the
total
amount
disbursed
by
Defendants as a result of the transactions
at issue pursuant to 11 U.S.C. § 542(a).
All of these transactions occurred after
had
filed
their
Bankruptcy
Debtors[4]
petitions.
Accordingly, the proper method
for the Trustee to attempt to recover postpetition transfers is pursuant to § 549.
Trustee undoubtedly did not include a claim
under § 549 because it contains a two year
statute of limitations. 11 U.S.C. § 549(d).
By contrast, § 542 contains no express
limitations
period.
Trustee,
however,
cannot circumvent the two year limitations
period contained in § 549(d) by filing a
claim under § 542(a) to recover for a postpetition transfer.
(ECF No. 1-26, at 11-12).
In

opposing

limitations
claims

provision

under

accounting

that

§

are

motion,

of

542(a);

equitable

§

Appellant

549(d)
rather,

remedies,

does

argued

not

“[b]ecause
the

govern

timeliness

the

turnover

turnover

under § 542 is governed by the doctrine of laches.”
34, at 32).

that

of

and

claims

(ECF No. 1-

According to Appellant, a laches defense could not

be successful because Appellees could not show that the trustee
4

The plural “Debtors” refers to Mrs. Hoang and her husband,
Thanh Hoang, who filed a chapter 11 petition shortly after his
wife. That case was also converted to chapter 7 and Mr. Rosen
was named as trustee. The bankruptcy court subsequently ordered
that the two cases be jointly administered.
4

failed to act diligently in filing the complaint after discovery
of the claims or that any prejudice resulted from the delay in
filing.

He pointed to allegations in the complaint that he “did

not discover the facts giving rise to the claims being asserted
here until less than three years before the commencement of this
adversary proceeding” due to “the complicated and tangled nature
of [Debtor’s] assets and financial affairs,” and argued that
“[t]hese allegations must be accepted as true for the purposes
of the defendants’ motion.”

(ECF No. 1-34, at 34 (quoting ECF

No. 1-24 ¶¶ 158-59)).
At a motions hearing held June 9, 2010, the bankruptcy
court agreed with Appellees that the turnover claims were timebarred:
I am going to grant the motion to dismiss on
statute of limitations [grounds] without
prejudice to the Plaintiff’s right to amend
[the] complaint, to assert further facts
upon which a determination could be made
that the discovery rule applies here to
allow the complaint to survive.
(ECF No. 1-41, at 7).

On March 31, 2011, the court issued a

memorandum of decision and order dismissing all counts of the
original complaint, albeit with leave to amend certain claims,
including those seeking turnover.
On

May

complaint,

2,

raising

2011,
two

(ECF No. 1-43).

Appellant
counts

for

filed

his

turnover

first
and

alleging co-conspirator liability for conversion.
5

one

amended
count

Rather than

asserting

additional

however,

the

contained

in

facts

amended
the

in

support

complaint

original

omitted

pleading

discovery of the turnover claims.

of

equitable

the

related

only
to

the

tolling,

paragraphs
trustee’s

Instead, Appellant attempted

to bolster his defense to any laches argument, asserting that
“none of the defendants will suffer any unfair prejudice as a
result of any delay by Rosen in commencing suit against the
defendants”;

that

“all

relevant

documentary

evidence

and

relevant electronically stored evidence has been preserved and
is reasonably available to the defendants in connection with
their defense against the claims here”; and that “all witnesses
having

personal

knowledge

that

would

be

relevant

in

this

proceeding and favorable to the [] defense . . . are reasonably
available to be deposed and to testify.”

(ECF No. 1-2 ¶¶ 166-

68).
Appellees
amended

again

complaint

moved

did

not

to

dismiss.

address

the

Observing

that

deficiencies

the

of

the

original, they renewed their argument that the turnover claims
were time-barred under § 549(d)’s statute of limitations, adding
that, even if the doctrine of laches applied, “the degree of
prejudice caused by the Trustee’s delay in bringing the § 542(a)
claims

is

irrelevant”

because

“Maryland’s

general

three-year

statute of limitations would govern whether there has been an
unreasonable delay sufficient to invoke the doctrine” and “[i]t
6

is undisputed that the Trustee waited more than three years . .
. to file his Original Complaint.”

(ECF No. 1-4, at 12).

In

any event, Appellees argued, the turnover claims could not be
sustained

on

the

merits

because

Mrs.

Hoang,

the

debtor-in-

possession, “had custody and control of the proceeds at all
times.”
with

(Id. at 15).

all

directives

They insisted that because they complied
of

the

estate

administrator,

they

nothing wrong” and could not be liable for turnover.

“did

(Id.).

In response, Appellant conceded that he was “at least [on]
inquiry notice” of the grounds for his turnover claims “more
than three years before [it] was filed,” but argued that this
fact alone was not dispositive.

(ECF No. 1-8, at 3).

According

to Appellant, federal law, not Maryland state law, governed a
laches

defense

incorporate

the

established

by

limitations.”
complaint

in

this

context,

principle
the

(Id.

that

expiration
at

sufficiently

8).

and

laches

of
He

alleged

“federal

the

is

does

not

automatically

analogous

maintained
that

law

that

Appellees

statute
the

of

amended

were

not

prejudiced as a result of his delay in bringing the action and
that the issue could not be resolved in the context of a motion
to dismiss.
Prior to a hearing on the motion to dismiss the amended
complaint, the bankruptcy court issued a decision in another
adversary proceeding brought by the trustee on behalf of the
7

Hoangs’ bankruptcy estates.

See In re Minh Vu Hoang, 452 B.R.

902, 906-08 (Bankr.D.Md. 2011) (“Dahan I”).

In Dahan I, Judge

Catliota confronted a similar issue regarding the viability of
turnover

claims

against

David

Dahan

and

associates,

who

allegedly assisted Mrs. Hoang in continuing her scheme, postpetition and after appointment of the trustee.

The defendants

argued that § 542 was limited in application to property that
was in their possession at the time the bankruptcy petition was
filed and that post-petition transfers could only be avoided
pursuant to § 549, which was subject to a two-year statute of
limitations.

Because the limitations period prescribed by §

549(d) had expired, the defendants maintained that the trustee’s
recovery of the money at issue was foreclosed.

In support of

their argument, the defendants relied principally on Deckelbaum
v. Cooter, Mangold, Tompert & Chapman, PLLC, 275 B.R. 737, 741
(D.Md. 2001), a case in which Judge Nickerson found, in relevant
part,

that

§

542

was

“an

inappropriate

means”

to

recover

property transferred post-petition and that such property could
only be recovered through an avoidance action under § 549.
In

Dahan

I,

Judge

Catliota

elected

to

follow

precedent, albeit with reservations:
This Court will follow Deckelbaum and
dismiss Plaintiff’s § 542 claims. However,
if the Court were writing on a clean slate,
it might well reach a different result. The
Deckelbaum court focused on the structure of
8

this

the Bankruptcy Code, and in particular, the
interplay between § 542 and § 549. But the
plain language of § 542 does not limit its
application to recovery of property that is
in a defendant’s possession only as of the
petition date. See United States v. Ron Pair
Enters., 489 U.S. 235, 109 S.Ct. 1026, 103
L.Ed.2d 290 (1989) (courts should interpret
a statute in accordance with its plain
meaning). To the contrary, § 542 recovery
can be sought from “an entity . . . in
possession, custody, or control during the
case of property. . . .” 11 U.S.C. § 542
(emphasis added). The specific application
of the section to property that is in the
possession,
custody
or
control
of
a
defendant “during the case” would seem
contrary to a determination that it only
applies to pre-petition transfers.
. . . .
The courts that conclude that § 542 is
limited to cases where the defendant is in
possession of recoverable property as of the
petition date do so based on § 549. . . .
They
reason
that
§
549
specifically
addresses
post-petition
transfers
and
contains important limitations that would
not apply to a post-petition § 542 action. .
. .
On their face at least, § 542(a) and §
549 address different circumstances. Section
542(a) addresses cases where the defendant
is or has been in possession of property of
the
estate,
while
§
549
addresses
unauthorized
post-petition
transfers
of
property. Nevertheless, generally speaking,
because one can be in possession of property
only where one has received a transfer of
property,
there
is
substantial
overlap
between the two provisions. But merely
because
there
may
be
overlap
in
the
application of the two statutory provisions
does not necessarily mean that one, § 549,
limits the other, § 542. . . .
9

In sum, in the view of the Court, the
question
is
not
free
from
doubt.
Nevertheless, as stated above, the Court
will follow Deckelbaum and dismiss the § 542
claims.
Dahan I, 452 B.R. at 906-08 (footnotes omitted).
In the instant case, the court held a hearing on July 11,
2011, on Appellees’ motion to dismiss the amended complaint.
counsel

for

Appellees

presented

his

opening

argument,

following colloquy ensued:
[APPELLEES]:
These are post-petition
transfers, transfers that were made after
the filing of the bankruptcy [case], and the
case law that we [cited] in our brief says
if you are going to bring a [§] 542 claim,
you have to comply with the [§] 549 statute
of limitations. . . .
THE COURT:
I take it you are not
familiar with the memorandum decision I
issued in an adversary proceeding before me
brought by this same Plaintiff, the Chapter
7 Trustee for [Minh] Vu Hoang and Thanh
Hoang, in adversary 11-87 about 10 days ago?
I adopted the rule that –- I adopted
the position [set forth in Deckelbaum that]
. . . Section 542 cannot be used by the
Trustee to recover post-petition transfers.
That is the exclusive province of Section
549.
[APPELLEES]:
Your Honor, I was not
aware of that decision. . . . Obviously,
that lends even further support to our
position in this case that these claims
should have been brought under [§] 549 and
they are subject to a 2 year statute of
limitations.
Obviously, that statute of

10

As
the

limitations expired
was brought. . . .

long

before

this

case

THE COURT:
I guess I could probably
cut this up and tell you that I am going to
adopt that position. . . . I have the sense,
from a status conference, that the Plaintiff
in the Dahan case that I mentioned is going
to appeal that.
So, maybe we will get an
ultimate resolution but I am going to adopt
that here.
So, I will be dismissing the 2
[§] 542 counts.
(ECF

No.

1-44,

at

6-7).

In

addressing

the

court’s

ruling,

Appellant admitted that he saw no “way around saying [that the
instant case] is within the scope of the ruling [in Dahan I]”
and confirmed that the court was “not inclined to reconsider the
ruling.”

(Id. at 12).

Nevertheless, in light of the fact that

he was planning to move for leave to appeal Dahan I, Appellant
urged the court to decide “the issues that have been raised
relating to la[]ches and the statute of limitations . . . that
would tee those issues up for appeal also.”

(Id.).

The court

declined to do so.
By a memorandum of decision and order issued August 31,
2011, the bankruptcy court dismissed the amended complaint, but
allowed

Appellant

fourteen

days

in

which

to

file

a

second

amended complaint “to assert a claim for conspiracy to hinder,
delay or defraud the estate[.]”

(ECF No. 1-11, at 2).

On

September 14, Appellant filed his second amended complaint, as
well

as

a

motion

for

leave

to

11

appeal

the

dismissal

of

his

turnover claims.

The motion for leave to appeal was docketed in

this court on October 3, 2011, as Civil Action No. DKC 11-2934.
While that motion was still pending, Judge Catliota issued a
final order dismissing Appellant’s second amended complaint in
the adversary proceeding.
was denied as moot.

Thus, the motion for leave to appeal

(See Civ. No. DKC 11-2934, ECF No. 4).

On February 2, 2012, Appellant noted the instant appeal
“from the final judgment in this action entered on January 23,
2012 (together with all interlocutory orders that are merged in
that final judgment, including but not limited to the order
entered March 11, 2011[,] dismissing the original complaint with
leave

to

amend

and

the

order

entered

on

August

31,

2011[,]

dismissing the First Amended Complaint with leave to amend).”
(ECF No. 1).

The notice of appeal was docketed in this court on

February 24.
On the same day that Appellant’s initial brief was due,
this court rendered its decision in the Dahan appeal.

See In re

Minh Vu Hoang, 469 B.R. 606 (D.Md. 2012) (“Dahan II”).

While

Dahan II ultimately affirmed the bankruptcy court’s ruling, it
did so on different grounds, concluding that “the property at
issue [could not] be recovered pursuant to § 542(a)” based on
three underlying premises: “(1) § 542(a) entitles the trustee to
possession

of

property

of

the

estate;

(2)

property

that

is

transferred is not property of the estate; and (3) the property
12

at issue in this case was transferred.”
615.

Dahan II, 469 B.R. at

Observing that the transactions at issue in Deckelbaum

were

also

post-petition

transfers,

the

court

found

that

its

ruling was consistent with Judge Nickerson’s decision in that
case.

It

stopped

short,

however,

of

endorsing

the

broader

concept embraced by some courts that an action for turnover
under

§

542(a)

is

confined

to

property

of

the

estate

in

possession of the defendant at the time the bankruptcy petition
is filed.

See, e.g., In re 31-33 Corp., 100 B.R. 744, 747

(Bankr.E.D.Pa. 1989).
the

estate

may

be

Rather, the court opined, “property of

received

by

a

defendant

(most

often

the

debtor), post-petition, without a transfer having occurred,” in
which case “the property, or its value, is subject to a turnover
order to the extent that the debtor had an interest at the time
the

bankruptcy

case

commenced.”

Dahan

II,

469

B.R.

at

620

(citing In re Shearin, 224 F.3d 353, 356-57 (4th Cir. 2000)).
Appellant moved for an extension of time in which to file
his

brief,

explaining

that

the

Dahan

II

decision

had

“substantially change[d] the complexion of this appeal, and it
would make no sense for [him] to go ahead with the filing of his
existing brief.”

(ECF No. 3, at 1).

That motion was granted,

and Appellant filed his opening brief on April 9, 2012, framing
the question presented as follows:

13

This Court held in [Dahan II] that §
542(a) applies in cases where the defendant
received property of the estate [postpetition], but only if he received it other
than by means of a “transfer” as defined in
the Bankruptcy Code.
The complaint here
alleges
that
the
defendants
received
property of Minh Vu Hoang’s estate [postpetition], and the Chapter 7 trustee in her
bankruptcy [case] has sued the defendants
under § 542(a) to recover the value of the
property they received.
The question therefore presented under
Dahan
[II]
is
whether
the
defendants
received the property at issue as the result
of a transfer.
(ECF No. 5, at 3).

Appellees filed their brief on April 27 (ECF

No. 6) and Appellant filed a reply on May 14 (ECF No. 7).
II.

Standard of Review
This

court

reviews

the

bankruptcy

court’s

dismissal

for

failure to state a claim under a de novo standard of review.
See In re Rood, 426 B.R. 538, 550 (D.Md. 2010) (citing Mylan
Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993)).
The

purpose

of

a

motion

to

dismiss

under

Fed.R.Civ.P.

12(b)(6), which is applied to bankruptcy adversary proceedings
pursuant to Fed.R.Bankr.P. 7012(b), is to test the sufficiency
of the complaint.

Presley v. City of Charlottesville, 464 F.3d

480, 483 (4th Cir. 2006).
standard

of

Rule

8(a),

The complaint need only satisfy the
which

requires

a

“short

and

plain

statement of the claim showing that the pleader is entitled to
relief.”

Fed.R.Civ.P. 8(a)(2).
14

“Rule 8(a)(2) still requires a

‘showing,’ rather than a blanket assertion, of entitlement to
relief.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 n. 3

(2007).

That showing must consist of more than “a formulaic

recitation

of

the

elements

of

a

cause

of

action”

or

assertion[s] devoid of further factual enhancement.”

“naked

Ashcroft

v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted).
At this stage, all well-pleaded allegations in a complaint
must be considered as true, Albright v. Oliver, 510 U.S. 266,
268 (1994), and all factual allegations must be construed in the
light

most

favorable

to

the

plaintiff,

see

Harrison

v.

Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir.
1999) (citing Mylan Labs., 7 F.3d at 1134).

In evaluating the

complaint, unsupported legal allegations need not be accepted.
Revene v. Charles Cnty. Comm’rs, 882 F.2d 870, 873 (4th Cir.
1989).

Legal conclusions couched as factual allegations are

insufficient, Iqbal, 556 U.S. at 678, as are conclusory factual
allegations devoid of any reference to actual events, United
Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979);
see also Francis v. Giacomelli, 588 F.3d 186, 193 (4th
2009).
to

Cir.

“[W]here the well-pleaded facts do not permit the court

infer

more

than

the

mere

possibility

of

misconduct,

the

complaint has alleged, but it has not ‘show[n] . . . that the
pleader

is

entitled

to

relief.’”

(quoting Fed.R.Civ.P. 8(a)(2)).
15

Iqbal,

556

U.S.

at

679

Thus, “[d]etermining whether a

complaint states a plausible claim for relief will . . . be a
context-specific task that requires the reviewing court to draw
on its judicial experience and common sense.”

Id.

In moving to dismiss, Appellees argued, inter alia, that
Appellant’s turnover claims are time-barred.

The statute of

limitations and the doctrine of laches are affirmative defenses
that

a

party

Fed.R.Civ.P.

8(c),

proceedings
appropriate

typically

by

must

incorporated

Fed.R.Bankr.P.

grounds

raise

for

in

into
7008,

dismissal.

a

pleading

bankruptcy
and

See

are

not

Eniola

v.

under

adversary
usually
Leasecomm

Corp., 214 F.Supp.2d 520, 525 (D.Md. 2002); Gray v. Metts, 203
F.Supp.2d 426, 428 (D.Md. 2002).
proper

“when

the

face

of

the

Nevertheless, dismissal may be
complaint

clearly

existence of a meritorious affirmative defense.”

reveals

the

Brooks v. City

of Winston-Salem, 85 F.3d 178, 181 (4th Cir. 1996).
III. Analysis
Based on the reasoning of Dahan II – which, as noted, had
not been decided at the time the first amended complaint was
dismissed by the bankruptcy court – Appellant contends that he
has stated a sufficient claim for turnover of estate property
pursuant to § 542(a).

He argues that, unlike the defendants in

Dahan and Deckelbaum, Appellees possessed property of the estate
– i.e., the proceeds from the sale of ten properties owned by
Debtor vis-à-vis various sham business entities – “as conduits,
16

not

transferees,”

insofar

as

they

“received

and

held

estate

funds on behalf of [Debtor]” and “had no right to use the funds
for their own benefit.”

(ECF No. 5, at 19).

Moreover, he

asserts that although Debtor was the debtor-in-possession at the
time of the transactions at issue, Appellees either knew or
should have known that she was acting in dereliction of her
fiduciary duty and that she was without actual authority to
transfer the estate’s interest in the properties.
Appellees counter that it is undisputed that “each of the
transactions

at

issue

involved

sales

to

bona

fide

third

parties”; thus, “post-petition transfer[s] of estate property
occurred and [] the proceeds of those transfers was no longer
property of the estate.”

(ECF No. 6, at 11).

Consequently,

according to Appellees, the trustee was required to avoid those
transfers pursuant to § 549, but was precluded from doing so
because
expired.

the

statute

of

limitations

found

in

§

549(d)

had

Appellees further contend that if the sales proceeds

at issue are determined to be property of the estate, their
obligation under § 542 was to turn them over to Mrs. Hoang, the
debtor-in-possession, and there is no dispute that they did so.
In any event, they argue that dismissal of Appellant’s turnover
claims was proper because those claims are time-barred.
As
petition

explained
gives

in

rise

Dahan
to

the

II,

the

creation
17

filing
of

an

of

a

estate,

bankruptcy
which

is

comprised, inter alia, “of all the following property, wherever
located and by whomever held”:
(1) Except as provided in subsection (b)
and (c)(2) of this section, all legal or
equitable
interests
of
the
debtor
in
property as of the commencement of the case.
. . . .
(3) Any interest in property that the
trustee
recovers
under
section
329(b)
[excess attorney’s fees], 363(n) [damages
from improper sale], 543 [property turned
over by custodian], 550 [property from
avoided transfer], 553 [property recovered
from offset], or 723 [property recovered
from general partners] of this title.
. . . .
(6) Proceeds, product, offspring, rents, or
profits of or from property of the estate,
except such as are earnings from services
performed by an individual debtor after the
commencement of the case.
(7) Any interest in property that the
estate acquires after the commencement of
the case.
§ 541(a).

Thus, “property of the estate” consists of every

conceivable interest of the debtor in property as of the time
the

bankruptcy

possession of it.

case

is

commenced,

regardless

of

who

has

See United States v. Whiting Pools, Inc., 462

U.S. 198, 205 (1983)).
Upon

appointment

in

a

chapter

7

case,

the

trustee

essentially steps into the shoes of the debtor with respect to
the debtor’s interests in such property.
18

The trustee is charged

with “marshal[ing] and consolidat[ing] the debtor’s assets into
a broadly defined estate from which, in an equitable and orderly
process, the debtor’s unsatisfied obligations to creditors are
paid to the extent possible.”
10

(4th

Cir.

1996).

In

In re Andrews, 80 F.3d 906, 909aid

of

that

responsibility,

the

bankruptcy code provides a number of mechanisms by which the
trustee may obtain possession and control of estate property.
One such mechanism is § 542(a), which provides:
an entity, other than a custodian, in
possession, custody, or control, during the
case, of property that the trustee may use,
sell, or lease under section 363 of this
title, or that the debtor may exempt under
section 522 of this title, shall deliver to
the trustee, and account for, such property
or the value of such property, unless such
property is of inconsequential value or
benefit to the estate.
Thus, § 542(a) entitles the trustee to possession of property of
the estate.

See In re Pyatt, 486 F.3d 423, 427 (8th Cir. 2007)

(“By referring to § 363, a section which authorizes the trustee
to ‘use, sell, or lease . . . property of the estate,’ the
drafters of § 542(a) made it clear that the turnover obligation
applies to property of the estate”).
As

the

United

States

Court

of

Appeals

for

the

Eighth

Circuit explained in In re Knaus, 889 F.2d 773, 775 (8th Cir.
1989):
The principle is simply this: that a person
holding property of a debtor who files
19

bankruptcy proceedings becomes obligated,
upon
discovering
the
existence
of
the
bankruptcy
proceedings,
to
return
that
property to the debtor (in chapter 11 or 13
proceedings) or his trustee (in chapter 7
proceedings). Otherwise, if persons who
could make no substantial adverse claim to a
debtor’s property in their possession could,
without cost to themselves, compel the
debtor or his trustee to bring suit as a
prerequisite to returning the property, the
powers of a bankruptcy court and its
officers to collect the estate for the
benefit
of
creditors
would
be
vastly
reduced. The general creditors, for whose
benefit the return of property is sought,
would have needlessly to bear the cost of
its return. And those who unjustly retain
possession of such property might do so with
impunity.
Insofar as § 542(a) calls for turnover of property of the
estate “or the value of such property,” the Fourth Circuit has
interpreted the statute as requiring any entity that possessed
estate

property

at

any

time

after

the

commencement

of

the

bankruptcy case to account for the value of the property if it
is no longer in its possession.

See In re Shearin, 224 F.3d

353, 356-57 (4th Cir. 2000) (citing In re USA Diversified Prods.,
Inc., 100 F.3d 53, 56-57 (7th Cir. 1996)).5

Thus, the trustee

seeking turnover need not establish that the entity from which
turnover is sought still possesses the property at issue.

The

question, rather, is whether it did so at any time after the
debtor filed the bankruptcy petition.
5

As noted in Dahan II, other courts have adopted a
different interpretation. See In re Pyatt, 486 F.3d at 428-29.
20

The trustee’s amended complaint emphatically alleges facts
to show that the property at issue in this case – i.e., the
proceeds

of

the

post-petition

property of the estate.

sale

of

ten

properties

–

was

According to the trustee’s amended

complaint, Debtor either held an interest in the properties on
May 10, 2005 – the date she filed her bankruptcy petition – or,
in two cases, purchased properties with estate assets.
1-2

¶

87).

subsequent

In

sales

either

event,

constituted

the

money

“[p]roceeds,

(ECF No.

derived

product,

from

the

offspring,

rents, or profits from property of the estate,” and was itself
“property

of

the

estate.”

§

541(a)(6).

As

to

the

two

properties purchased post-petition, “[a] portion of the funds .
.

.

came

from

checks

drawn”

on

the

IOLTA

account

allegedly

maintained by Parker and Law Offices for the benefit of Debtor.
(Id. at ¶ 94).

Gemini “received the funds paid by or on behalf

of the buyer” (id. at ¶ 103) in each of the ten transactions, as
those funds were “deposited in[to] an account . . . in the name
of Gemini . . . until they were disbursed.”

6

(Id. at ¶ 104).6

There appears to be some inconsistency in the amended
complaint as to the roles of Parker and Law Offices in holding
and/or disbursing the proceeds of the sales.
In the
introduction, Appellant alleges that “Gemini received the
proceeds” of the sales, and, “instead of turning them over to
the estate, Parker (and his LLC) distributed them to various
third parties on Minh Vu Hoang’s instructions.” (ECF No. 1-2 ¶
4).
In the substantive allegations, however, the complaint
recites that the funds for the purchase of two of the properties
were at least partially derived from the IOLTA account
21

Moreover, at the time of each of these transactions, Parker was
aware

that

Debtor

had

filed

a

bankruptcy

petition

knowledge may be imputed to Gemini and Law Offices.
166-77).
custody,

and

his

(Id. at ¶¶

Thus, Appellees are alleged to have had “possession,
or

control,

during

the

case,

of

property

that

the

trustee [could] use, sell, or lease,” and were obligated to
“deliver to the trustee, and account for, such property or the
value of such property[.]”

§ 542(a).

Accordingly, the amended

complaint sufficiently states a claim for turnover.
While it is true, as Appellees contend, that the proceeds
at issue derived from transfers of property, the trustee was not
required to avoid any post-petition transfer, pursuant to § 549,
in order to draw the property back into the estate.7

Indeed, the

maintained by Parker and Law Offices, but the proceeds from the
sales of the ten properties were possessed exclusively by
Gemini. (Id. at ¶¶ 94, 104). For present purposes, it suffices
that each of the appellees is alleged to have possessed property
of the estate during the bankruptcy case.
Notably, the complaint also alleges that Law Offices
received an unauthorized post-petition payment of $13,000 as “a
settlement cost” in connection with one of the sales, and that
this payment “constituted property of Minh Vu Hoang’s bankruptcy
estate.”
(Id. at ¶¶ 114, 115).
It is unclear whether this
amount is part of the $157,238.88 total sought from Parker and
Law Offices, but, if it is, this would likely constitute a
transfer that could only become property of the estate after
avoidance.
If an avoidance action is precluded by the
limitations provision of § 549(d), the property could not be
recovered by a turnover action.
7

Section 549(a) provides, in relevant part, that “the
trustee may avoid a transfer of the estate . . . that occurs
22

property at issue did not leave the estate until after it was in
Appellees’

possession.

When

the

properties

were

sold,

the

estate’s assets were simply converted from interests in real
property to interests in the proceeds from the sale of real
property.
“property

Pursuant to § 541(a)(6), those proceeds constituted
of

the

estate,”

and

it

allegedly subject to turnover.

is

that

property

that

is

For present purposes, it is

irrelevant that the money in question is no longer in Appellees’
possession or that it was later transferred to third parties.
Under the rule of In re Shearin, 224 F.3d at 356, so long as
Appellees possessed property of the estate after commencement of
the bankruptcy case, that property is “subject to turnover, and
[Appellees],

having

possessed

such

[property,]

must

‘account

for’ that property ‘or the value of said property.’”

To the

extent that Appellees argue that they effectively turned over
the property to the debtor-in-possession, they cite no case law
after the commencement of the case . . . [and] is not authorized
under this title or by the court.”
If a transfer is
successfully avoided, the property at issue is “drawn back into
the estate, thereby becoming ‘property of the estate’ under §
541(a)(3) via § 550(a).” Dahan II, 469 B.R. at 619.
Appellant urges the court to find that no transfer occurred
here because Appellees received the property as “conduits,” not
“transferees.” Appellees, however, do not challenge this point.
It is undisputed that they simply possessed the money in
question and distributed it in accordance with Debtor’s
instructions.
Unlike Dahan II, an avoidance action was not
necessary because the property in question never lost its status
as “property of the estate.”
23

supporting their view that this absolves them of any potential
liability.

The complaint clearly alleges that Appellees were

aware that Debtor had filed for bankruptcy and that she was
acting

in

dereliction

of

her

fiduciary

possession and without court approval.

duty

as

debtor-in-

On the instant record,

the court cannot conclude as a matter of law that Appellant’s
turnover claims will not lie.8

8

Notably, Deckelbaum presented a similar circumstance in
that the property in question related to post-petition transfers
made at the behest of the debtor-in-possession, which the
trustee later sought to recover pursuant to § 542(a). Among the
defenses asserted was one pursuant to § 363(c)(1).
Judge
Nickerson explained:
Section 363(c)(1) of the Bankruptcy
Code authorizes the debtor to “enter into
transactions, including the sale or lease of
property of the estate, in the ordinary
course
of
business”
without
notice
or
hearing.
11 U.S.C. § 363(c)(1).
Plaintiff
contends that the legal fees paid by Dunhill
to Defendant law firms were not in the
debtor’s ordinary course of business.
The
Court agrees.
As explained above, the
creation of Dunhill and other corporate
entities, and Debtor’s manipulation of those
entities (including but not limited to the
“Management
Agreement”)
constituted
a
serious breach of Debtor’s fiduciary duties
to his creditors.
See Kremen v. Harford
Mutual Insurance Co., 958 F.2d 602, 605 (4th
Cir. 1992).
Even when viewed in the light
most favorable to the Defendants, the fact
that Debtor used the accounts of one of
these sham entities to pay his lawyers is
surely not what the Code drafters envisioned
to be “in the ordinary course of business.”
Deckelbaum, 275 B.R. at 742.
24

Finally, Appellees argue that the turnover claims are timebarred due to expiration of the two-year statute of limitations
for post-petition avoidance set forth in § 549(d).

While the

limitations period in that provision effectively bars a turnover
claim

where

a

post-petition

transfer

has

occurred

–

i.e.,

because the transfer cannot be avoided, thus the property cannot
be drawn back into the estate such that the trustee would have a
right of possession – the property at issue here, as noted, was
property of the estate.

It is likely true that turnover claims,

which are equitable in nature, are subject to the doctrine of
laches.
(3rd

Cir.

See In re Mushroom Transp. Co., 382 F.3d 325, 336-37
2004)

(finding

turnover

claim

subject

to

laches,

requiring a showing of inexcusable delay in bringing the action
and

prejudice

resulting

therefrom).

To

the

extent

that

Appellees have raised such a defense, its merit does not appear
on the face of the complaint.

As the United States District

Appellees briefly address § 363(c) in a footnote in their
brief, asserting that, “based on Trustee’s allegation that
[Debtor] was in the business of buying distressed real estate
and selling it at a profit . . . , it appears that the
transactions were made in the ordinary course of business.”
(ECF No. 6, at 14 n. 7). This assertion glosses over numerous
allegations suggesting that Appellees either knew or should have
known that Debtor was engaged in illegal or improper conduct.
Viewing the complaint in the light most favorable to Appellant,
as the court must in considering a motion to dismiss, there is a
sufficient basis for finding that these transactions were not
made in the ordinary course of a legitimate business.

25

Court for the Middle District of North Carolina observed in
Fulmore v. City of Greensboro, 834 F.Supp.2d 396, 421 (M.D.N.C.
2011):
Laches is an affirmative defense . . . and
“a motion to dismiss filed under [Rule
12(b)(6)], which tests the sufficiency of
the complaint, generally cannot reach the
merits of an affirmative defense.” Goodman
v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir.
2007) (en banc); cf. Fed. Express Corp. v.
U.S. Postal Serv., 75 F.Supp.2d 807, 814
(W.D.Tenn. 1999) (“As evaluation of a claim
of laches is dependent upon the submission
of evidence, [Rule 12(b)(6)] is not the
proper
vehicle
for
bringing
such
a
request.”). An affirmative defense may only
be reached at the Rule 12(b)(6) stage “if
all facts necessary to the affirmative
defense ‘clearly appear[] on the face of the
complaint.’”
Goodman,
494
F.3d
at
464
(alteration in original) (emphasis omitted)
(quoting Richmond, Fredericksburg & Potomac
R.R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir.
1993)).
While expiration of the § 549(d) limitations period may prove to
be relevant to a laches analysis, it is not dispositive.
re Mushroom Transp. Co., 382 F.3d at 336-37.

See In

Rather, it merely

creates a presumption of inexcusable delay that Appellant must
eventually rebut, but the defense “is not ordinarily considered
on a motion to dismiss because the plaintiff is not required to
negate

it

in

its

complaint.”

Bethesda

Softworks,

LLC

v.

Interplay Entertainment Corp., Civ. No. DKC 09-2357, 2010 WL
3781660, at *9 (D.Md. Sept. 23, 2010).
claims

may

eventually

be

found
26

to

Thus, while the turnover
be

time-barred,

that

determination

cannot

be

made

in

the

context

reasons,

the

order

of

a

motion

to

dismiss.
IV.

Conclusion
For

the

foregoing

of

the

bankruptcy

court dismissing the turnover claims raised in Appellant’s first
amended

complaint

will

be

reversed.

A

separate

order

will

follow.

________/s/_________________
DEBORAH K. CHASANOW
United States District Judge

27