Killebrew, Matter of

Decision Date01 December 1989
Docket NumberNo. 89-4400,89-4400
Citation888 F.2d 1516
Parties, Bankr. L. Rep. P 73,188 In the Matter of Mack L. KILLEBREW and Delores B. Killebrew, Debtors. Mack L. KILLEBREW and Delores B. Killebrew, Appellants, v. Charles A. BREWER, Appellee. Summary Calendar.
CourtU.S. Court of Appeals — Fifth Circuit

Paul E. Nunu, Daphne Levey, Houston, Tex., for appellants.

Howard C. Ross, Jr., Jackson, Miss., for appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before REAVLEY, KING and JOHNSON, Circuit Judges.

KING, Circuit Judge:

Plaintiff-appellants, Delores and Mack Killebrew (collectively, the "Debtors"), filed for Chapter 7 bankruptcy in 1985. In 1987, they filed the complaint in the instant proceeding, seeking the turnover of certain assets from defendant-appellee, Charles Brewer, the bankruptcy trustee (the "Trustee"). The bankruptcy court found that the Trustee had abandoned the assets in question, but that he should be allowed to revoke such abandonment. The district court for the Southern District of Mississippi affirmed the bankruptcy court's findings. The Debtors appeal from this holding. We affirm the judgment of the bankruptcy court, but base our holding on different grounds: We find that the Trustee never abandoned the bankruptcy estate's interest in the assets in question.

I.

On February 27, 1985, plaintiff-appellants Mack L. Killebrew ("Killebrew") and Delores B. Killebrew filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Mississippi. 1 11 U.S.C. Sec. 101 et seq. In accordance with the Bankruptcy Code, the Debtors filed a "Statement of Financial Affairs for Debtor not Engaged in Business" and schedules of property, income and expenditures, and liabilities. In the personal property schedule and the summary of debts and property, the Debtors listed an interest in a trust established under Killebrew's father's will (the "trust") as an asset, but no value was given for such interest. 2

Killebrew was one of four beneficiaries of the trust. The trust instruments appointed the First National Bank of Holmes County the testamentary trustee (hereinafter, the "Testamentary Trustee"). The Testamentary Trustee was to hold the corpus of the trust (farmland) and lease this land to one of Killebrew's brothers until December 1986. 3 Between October 1986 and the end of December 1986, the brother leasing the land was given the first option to buy the land. After this time, if he did not purchase the land, it was to be sold to an outside buyer. In either event, at the time of the sale, the proceeds and any remaining income were to be distributed equally among the four beneficiaries. 4 Approximately one year before filing bankruptcy, Killebrew obtained a $50,000 loan from Guaranty Bank and Trust Company ("Guaranty"). As security for this loan, he assigned his "right, title and interest ..., including the right to all income" in and to the trust to Guaranty. For additional security--in case he died before the trust was dissolved--Killebrew obtained a $100,000 life insurance policy.

On March 12, 1985, an "Order for Meeting of Creditors and Fixing Times for Filing Objections to Discharge and for Filing Complaints to Determine Dischargeability of Certain Debts, Combined with Notice Thereof and of Automatic Stay" (the "combined notice/order") was issued by the bankruptcy court. This notice set April 16, 1985 as the date of the required section 341(a) meeting of creditors. 5 The combined notice/order also stated that the Trustee possessed the power to abandon property and that he would announce his plans in relation to the Debtors' property at the section 341(a) meeting.

The section 341(a) meeting occurred on April 16, 1985. At the meeting, the Trustee questioned Killebrew about his understanding of the value of the trust and the nature of his interest in it. The Trustee also discussed the value of the trust with an acquaintance of his who attended the section 341(a) meeting on behalf of another creditor. On the same date, Guaranty made a motion for relief from the automatic stay provisions of section 362 of the Bankruptcy Code. Notice of this motion was given to creditors and a hearing on such motion was set for May 15, 1985. The bankruptcy court granted the motion on May 24, 1985. Subsequently, the Testamentary Trustee paid Killebrew's share of the trust income annually to Guaranty.

In early 1987, the Trustee learned that the land held in trust was being sold. Accordingly, he wrote to the Testamentary Trustee and claimed Killebrew's share of the proceeds. Subsequently, on June 16, 1987, the Trustee filed a complaint requesting turnover of the trust proceeds that would otherwise be given to Killebrew. In its answer to this complaint, the Testamentary Trustee stated it had received $135,352.55 in trust proceeds from the sale of the real estate for the account of Killebrew on May 18, 1987. Pursuant to Guaranty's security agreement and following "written authority from the Trustee herein dated May 7, 1987, [the Testamentary Trustee] paid to said secured party the sum of $48,704.95 from the funds of the said [Killebrew]." A tax lien in the amount of $2,714.75 was also paid from the trust proceeds. This left the Testmentary Trustee holding a sum of $83,932.85. The bankruptcy court issued an order on July 31, 1987 mandating the turnover of the remaining trust proceeds to the Trustee--subject to any claims by the Debtors.

On October 20, 1987, the Debtors filed a complaint seeking the turnover of these funds from the Trustee. On October 28, 1987, the Debtors filed an amended complaint seeking the same. Debtors predicated their complaint on the claim that the proceeds were never property of the bankruptcy estate 6 and, additionally, that the Trustee had abandoned any possible interest in the trust by order of the court entered on May 24, 1985. Furthermore, they claimed that the trust did not vest in Killebrew until early 1987. The Trustee answered by denying these allegations "due to the misrepresentations of debtor in connection with this trust." However, in his memorandum brief in response to the Debtors' complaint, the Trustee stated that he had abandoned the trust property, but claimed that he had done so based on representations by Killebrew. He argued that the abandonment should be revoked. This case was heard by the bankruptcy court on August 29, 1988.

The bankruptcy court entered an opinion and order in favor of the Trustee on September 14, 1988. 101 B.R. 471. The bankruptcy court found that the Trustee had abandoned the estate's interest in the trust on or about May 24, 1985, "pursuant to representations by the debtors that the interest in the trust was purely contingent, and that if the funds ever were received from the trust, there would be no equity in the estate," but that he should be allowed to revoke this abandonment.

Following this order, the Debtors petitioned the United States District Court for the Southern District of Mississippi for reversal of the bankruptcy court's denial of the Debtors' request to have the remaining proceeds from the trust turned over to them. The district court held that the bankruptcy judge had committed no clear errors of fact in his opinion and adopted his legal conclusions.

Debtors now appeal to this court. On appeal, the Debtors argue that the district court erred in concluding that the bankruptcy court committed no error in finding that the "debtors knew or reasonably should have known there would be equity in the trust...." They also contend that the district court erred in concluding, as a matter of law, that revocation of the Trustee's abandonment of the trust property was justified in the instant case. In rebuttal, the Trustee asserts that he never abandoned the trust interest, but that if he had, revocation would be appropriate. Because we agree with the Trustee's argument and find that abandonment never occurred, we do not discuss the Debtors' arguments, which assume that the issue of abandonment was conceded below and address the issue of when abandonment may be revoked.

II.

Although this case has been reviewed on appeal by the district court, at this stage we engage in a review of the bankruptcy court's findings just as we would in an appeal coming from a trial in the district court. See, e.g., In re Commercial Western Finance Corp., 761 F.2d 1329, 1333 (9th Cir.1985) ("Because we are in as good a position as the district court to review the findings of the bankruptcy court, we independently review the bankruptcy court's decision."). Thus, we apply the clearly erroneous standard in reviewing findings of fact by the bankruptcy court, In re Bleaufontaine, 634 F.2d 1383, 1389 (5th Cir. Unit B 1981), and decide issues of law de novo. In re Texas Research, Inc., 862 F.2d 1161, 1163 (5th Cir.1989).

In the case sub judice, we review a finding of abandonment. While there may be circumstances under which findings related to abandonment are reviewed--at least in part--under the clearly erroneous standard, 7 we think that the conclusion reached by the bankruptcy court in this case was a legal conclusion and, therefore, we review it de novo.

III.

In response to the Debtors' arguments on appeal, which assume the Trustee's abandonment of the estate's interest in the trust, the Trustee maintains that he never abandoned such interest. In their reply brief, the Debtors contend that we should not consider this argument because the Trustee conceded this issue below, and, therefore, it is too late for the Trustee to make this argument. Moreover, in response to the Trustee's analysis of the components of abandonment, the Debtors argue that the combined notice/order, issued prior to the section 341(a) meeting, contained the notice requisite for the abandonment of property and that an "administrative abandonment" was possible. 8 We first address the...

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