FROST v. REILLY

Filing 8

MEMORANDUM OPINION. Signed by Judge Michael A. Shipp on 1/8/2013. (gxh)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COU T
DISTRICT OF NEW JERSEY

In re Susan M. Reilly,

Debtor,

Civil Action No. 12-3171 (MAS)

ON
PEAL FROM THE
BANK UPTCY COURT OF THE
DIST ICT OF NEW JERSEY

BARRY W. FROST,
Chapter 7 Trustee,
Appellant,

v.
MEM RANDUM OPINION

SUSAN M. REILLY,

1

Appellee.

SHIPP, District Judge
I.

Introduction
The parties appeal an order entered by the Bankruptcy Cpurt on April 12, 2012. That

order memorialized the Bankruptcy Court's oral opinion issued on April 2, 2012. The
Bankruptcy Court ordered that an asset in the form a Tevis claim 1 [of Appellee, Susan M. Reilly
("Debtor"), was abandoned to her by the Chapter 7 Trustee, Appellant Barry W. Frost (
"Trustee"), upon the entry of the final decree closing her

b~ptcy

action pursuant to 11

U.S.C. § 554(c). The Bankruptcy Court further found that the abandonment was not revoked
1

A Tevis claim draws its name from Tevis v. Tevis, 79 N.J. 4221(N.J. 1979), and describes a
"marital tort" such as a spouse's claim for damages for physical/personal injury suffered at the
hands of the other spouse during the course of marriage.

when the Trustee reopened the bankruptcy action pursuant to 11 U.S.C. § 350. After careful
consideration, and for the reasons set forth below, the Court finds that the matter should be
remanded so that the Bankruptcy Court may review the matter conLstent with this opinion.

II.

Jurisdiction and Standard of Review
United States District Courts have jurisdiction to review appeals "from final judgments,

orders, and decrees . . . of bankruptcy judges entered in cases j d proceedings referred to the
bankruptcy judges under section 157 of this title." 11 U.S.C. § 158{a). The District Court sits "as
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an appellate tribunal, appl[ying] a clearly erroneous standard to review the bankruptcy court's
factual findings and a de novo standard to review its conclusions of law." In re Blatstein, 260
B.R. 698, 705 (E.D. Pa. 2001) (citing In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994)). If it is

alleged that the bankruptcy court abused its discretionary authority, "the district court may only
inquire whether the [bankruptcy court's] decision rests upon a clearly erroneous finding of fact,
an errant conclusion of law, or an improper application of law to fact." /d. (citing Int 'l Union,

UAWv. Mack Trucks, Inc., 820 F.2d 91,95 (3d Cir. 1987)).

III.

Background
Debtor filed for relief under Chapter 7 of the United States Bankruptcy Code (the

"Code") on November 20, 2009. Trustee was appointed on November 23, 2009. Following the
course of a typical Chapter 7 action, Trustee filed a Report of No Distribution on March 1, 2010.
An order discharging Debtor's debts was entered on March 15, 2010. The Final Decree closing
the case was entered on March 18, 2010.
Trustee filed a motion to reopen the case pursuant to 11 U.S.C. § 350(b) on March 3,
2011. That motion was opposed by Debtor. An order granting the motion to reopen was filed by
the Bankruptcy Court on April 4, 2011. On February 17, 2012, Trustee filed a Notice of

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Settlement of Controversy ("NSC") with Orrin Gensinger ("Gensinger"). 2 The NSC outlined the
following: "Orrin Gensinger shall pay to the Trustee the sum of $15,000 in full and complete
satisfaction of the claims that Trustee has by virtue of these judgments and Orrin Gensinger shall
remain responsible for the payment of an exemption not to exceed $20,200." A52.
Debtor filed an objection to the NSC on March 8, 2012. The Bankruptcy Court held a
hearing on the matter on March 19, 2012. The Bankruptcy Court ruled that Debtor's Tevis claim
was technically abandoned by Trustee under § 552(c) when the bankruptcy action was first
closed and that the subsequent reopening under § 350(b) on March 3, 2011, did not revoke the
abandonment. The Bankruptcy Court held that "not only was the property fully administered, it
is deemed abandoned and the Court views that operation of law as being equivalent of having
filed a notice of abandonment" under§ 554(a) or (b). A154-55.

IV.

Analysis

The issues presented on appeal are rather straightforward. Appellant contends that the
reopening of a bankruptcy action pursuant to§ 350(b) should lead to an automatic revocation of
a "technical abandonment" made pursuant to § 554(c). If that were the case, Trustee would be
entitled to settle Debtor's claim against Gensinger for the benefit of the estate. The Bankruptcy
Court, however, ruled that a technical abandonment is analogous to a filing of a notice of
abandonment and is, therefore, irrevocable. As such, Trustee was barred from settling Debtor's
2

Gensinger is Debtor's ex-husband. Per an arbitration award, Debtor "was awarded '$100,000 in
her 'Tevis/personal injury claim' against [Gensinger], plus $15,750.64 in prejudgment interest."'
A75, <){10 (alterations in original). Those injuries flowed from an incident of domestic violence
which occurred on November 19, 2005. A75, <)Ill. That judgment was described on Debtor's
schedule C of assets as a "[c]laim against Orrin Gensinger - judgment against ex-husband,
(collectability questionable) (award is $115,750.68 less attorney's fees)." A23. Debtor claimed
that the value of the judgment was $80,000 less $20,200 which was exempt under
§ 522(d)(ll)(D). A25. After holding a§ 341 meeting of creditors, Trustee filed the above noted
Report of No Distribution. No action was taken by Trustee to execute the Tevis judgment against
Gensinger.
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claim against Gensinger. The Third Circuit has not provided an analytical framework on this
discrete issue.
As explained more fully below, the Court finds that a technical abandonment is not

automatically revoked upon reopening of the bankruptcy action. Under the facts as presented
below, the Bankruptcy Court's ultimate finding that the technical abandonment was not revoked
appears reasonable. In an abundance of caution, however, and in accordance with several courts
of appeals which have provided guidance on the issue, the Court finds that an analysis pursuant
to Federal Rule of Civil Procedure ("Rule") 60(b) is the appropriate standard to employ to
determine if the technical abandonment should be considered revoked. As such, remand is
required.

A.

Property Technically Abandoned Pursuant to 11 U.S.C. § 554(c) is not
Automatically Revoked when the Bankruptcy Case is Reopened under
11 u.s.c. § 350(b).

11 U.S.C. § 554(c) states that "[u]nless the court orders otherwise, any property
scheduled under section 521(a)(1) of this title not otherwise administered at the time of the
closing of a case is abandoned to the debtor and administered for purposes of section 350 of this
title." The property must be properly scheduled by a debtor, as well as unadministered by the
trustee, in order to be technically abandoned pursuant to§ 554(c). See Hutchins v. I.R.S., 67 F.3d
40, 43 (3d Cir. 1995). Neither party contends that Debtor's Tevis claim was improperly
scheduled or had been administered by Trustee.
Trustee argues that the reopening of a bankruptcy case pursuant to§ 350(b) automatically
revokes a technical abandonment and cites to In re Figlio, 193 B.R. 420 (Bankr. D.N.J. 1996),
for support. (Appellant's Br. 5.) In Figlio, the Bankruptcy Court stated that "in order for a
technical abandonment to occur, (1) the asset must have been scheduled in the bankruptcy

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petition or any amendments, (2) the asset must not have been administered, and (3) the case must
have been closed." In re Figlio, 193 B.R. at 423. Analysis of the first two issues was not
...

· ~ ··

conducted as the parties in Figlio did not dispute that the asset was properly scheduled and had
not been administered. Figlio, rather, turned on the third issue: whether the case was closed. The
Figlio court held that "closed" for purposes of§ 554(c) meant "properly and finally closed." /d.

at 424 (quoting Bilafsky v. Abraham, 183 Mass. 401, 403 (1903)). Reopening of a case pursuant
to

§ 350(b ), in the opinion of the Figlio court, therefore created a situation in which the

bankruptcy action "was never 'closed' within the meaning of 11 U.S.C. § 544(c) [sic] and
consequently the [asset was] not abandoned." !d. at 424.
The Figlio court observed that reopening a case under § 350(b) .;tj-s .a fact sensitive
decision which often involves a balancing between the certainty afforded parties by finality
against the benefits of full and proper administration of all assets." !d. at 425 (citation omitted).
The doctrine of laches was noted as a protection against the threat of cases being reopened, or
threatened to be reopened, "in perpetuity." /d. The Figlio court then found that the facts in the
case before it supported a finding that the case should be reopened, that laches was not a bar, and
by operation of law, the debtor's previously abandoned property was revoked and clawed back to

the estate for further administration. /d. at 425-26.
The Court is not persuaded by the Trustee's reliance on Figlio for the proposition that
reopening of a case pursuant to§ 350(b) revokes a previously proper technical abandonment by
operation of law. While the Figlio court recognized the fact sensitive nature of the inquiry, "a
debtor seeking to reopen a case in order to schedule an overlooked debt should [not] have to
relinquish all technically abandoned properties (which may have in the meantime increased in
value through the debtor's efforts) ...." In re Woods, 173 F.3d 770, 777 (lOth Cir. 1999), cert.

5

denied, 528 U.S. 878 (1999) (emphasis added). "Moreover, § 350(b) does not indicate what
effect reopening has on technical abandonments, and it does not by its terms provide authority to
revoke an abandonment." !d.
In addition, the rule in Figlio would have the opposite effect desired by the bankruptcy

system, which seeks a fresh start for debtors while compensating creditors to the maximum
extent fairly possible. Under Figlio, the debtor would have an on-going fear of claw back and
would be discouraged from reopening the case himself in order to possibly list additional
creditors or assets that were required to be part of the original bankruptcy action/filing. Finally,
the development of circuit level case law over the sixteen years since Figlio was decided has
provided the Court with a more appropriate alternative for determining if a technically
abandoned asset should be clawed back into the estate after a case is reopened. That alternative is
discussed below.

B.

Technical Abandonments are Revocable Following a Federal Rule of Civil
Procedure 60(b) Analysis.

The basis for determining whether a technical abandonment should be revoked has not
been determined by the Third Circuit. In fact, there are many approaches to this issue amongst
the bankruptcy courts. See Adam I. Adler, Navigating the Morass: A Proposed Uniform

Standard to Determine the Revocability of Technical Abandonments, 27 Emory Bankr. Dev. J.
523, 526 (2011) (stating that "no fewer than six standards are currently employed to determine
the revocability of technical abandonments.") As explained below, Rule 60(b) provides the best
standard regarding revocability.
The Bankruptcy Court in this case stated that because Debtor's case had been "closed,"
Trustee's technical abandonment of Debtor's Tevis claim was the "equivalent of [Trustee] having
filed a notice of abandonment." A154-55. Assets abandoned pursuant to a notice of abandonment
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under § 554(a) or (b) are generally considered "strictly" irrevocable. In re Woods, 173 F.3d 770,
778 (lOth Cir. 1999) (citing In re Gibson, 218 B.R. 900, 904 (Bankr. E.D. Ark. 1997)).
Strict irrevocability, however, is not appropriate when considering a technical
abandonment because a "technical abandonment may occur inadvertently as an automatic
consequence of premature case closing." !d. Abandonment under § 554(c), therefore, must be
viewed as raising a "rebuttable presumption" that the technically abandoned property should
continue to remain abandoned. !d. (quoting 3 William L. Norton, Jr., Norton Bankruptcy Law
and Practice§ 53:3 (2d ed. 1995 & supp. 1998)). The presumption may only be overcome, and
further administration of the estate allowed, if "the considerations that would have justified
abandonment prior to the closing of the case do not exist." !d. (quoting Norton, supra). A more
detailed rubric for determining whether the rebuttable presumption has been met has been
outlined by the Tenth Circuit.
In Woods, the Tenth Circuit-the first court of appeals to consider the revocability of

technically abandoned property-held that Rule 60(b) 3 was the appropriate tool to determine
whether a previous technical abandonment should be revoked and the property clawed back into
the estate. This rule was also adopted by the Sixth Circuit. See LPP Mortg., Ltd. v. Brinley, 547
F.3d 643, 649 (6th Cir. 2008). This Court finds that the rule adopted in Woods and Brinley is the
more appropriate tool to determine whether technically abandoned property should remain
abandoned or whether the abandonment should be revoked. This method is flexible and leaves
the Bankruptcy Court with discretion to determine if any facts presented to it make revocation
appropriate.
3

Federal Rule of Bankruptcy Procedure 9024 states that Rule 60 applies to bankruptcy cases,
with some minor modifications, the only pertinent one being that "a motion to reopen a case
under the Code" is not limited to the one year limitation in Rule 60(c).
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Rule 60(b) provides:
On motion and just terms, the court may relieve a party or its legal representative
from a final judgment, order, or proceeding for the following reasons:
1) mistake, inadvertence, surprise, or excusable neglect;
2) newly discovered evidence that, with reasonable diligence, could
not have been discovered in time to move for a new trial under
Rule 59(b);
3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or misconduct by an opposing party;
4) the judgment is void;
5) the judgment has been satisfied, released or discharged; it is based
on an earlier judgment that has been reversed or vacated; or
applying it prospectively is no longer equitable; or
6) any other reason that justifies relief.
Essentially, and as noted in Woods, the key inquiry is whether there is a basis under Rule
60(b) to vacate the order which previously closed the bankruptcy case and triggered the technical
abandonment. If there is no such basis, Trustee's motion to reopen the case should have been
denied. In this case, however, the Parties have not appealed the order reopening the case and
have only challenged the Bankruptcy Court's decision to deny Trustee's Proposed Settlement
with Gensinger. That is of no matter. 4
This matter is remanded so that the Bankruptcy Court can analyze the facts of the case to
determine if any of them support revocation of the abandonment and in turn should allow
4

Debtor opposed the reopening of the case, which was requested by Trustee following his
receipt of a letter from Gensinger stating that, in Gensinger' s opinion, Debtor had committed
fraud by not correctly disclosing and scheduling the debts Gensinger owed Debtor. While the
Woods Court linked reopening of a case and the revocation analysis as part of the same
procedural process, there is no reason the Rule 60(b) analysis might not occur following the
reopening of the case, as long as it occurred before the property is revoked. Finally, in this case,
the additional development of the factual record-between the reopening and the filing of the
NSC, over ten months-will likely make the analysis of the Bankruptcy Court both easier and
more thorough.

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Trustee's NSC with Gensinger to be approved. For example, did "mistake, inadvertence,
surprise, excusable neglect, fraud or any other reason that justifies," exist which made entry of
the initial order closing the case-and triggering the technical abandonment-inequitable or
incorrect? If so, the Bankruptcy Court is to approve Trustee's NSC with Gensinger. If not, the
NSC should not be approved, Debtor's Tevis claim should be considered technically abandoned
and not subject to revocation, and Debtor's case should be closed. The Bankruptcy Court's
decision with regard to this matter, if challenged, will be subject to a review for abuse of
discretion. See Coltec Indus., Inc. v. Hobgood, 280 F.3d 262, 269 (3d Cir. 2002).
REMANDED for proceedings consistent with this opinion.

UNITED STATES DISTRICT JUDGE

Dated: January 8. 2013

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