Autos, Inc. v. Gowin, 03-4116-SAC.

• Decision Date: 08 September 2005
• Docket Number: No. 03-4116-SAC.,03-4116-SAC.
• Citation: 330 B.R. 788
• Parties: AUTOS, INC., Defendant/Appellant/Cross-Appellee, v. Kristen Kae GOWIN, Plaintiff/Appellee/Cross-Appellant.
• Court: U.S. Bankruptcy Court — District of Kansas

330 B.R. 788

AUTOS, INC., Defendant/Appellant/Cross-Appellee, v. Kristen Kae GOWIN, Plaintiff/Appellee/Cross-Appellant.

No. 03-4116-SAC.

United States Bankruptcy Court, D. Kansas.

September 8, 2005.

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Luke A. Sobba, Richard F. Hayse, Morris, Laing, Evans Brock & Kennedy, Chtd., Topeka, KS, for Defendant/Appellant/Cross-Appellee.

Frederick W. Schwinn, Consumer Law Center, P.A., Livermore, CA, for Plaintiff/Appellee/Cross-Appellant.

MEMORANDUM AND ORDER

CROW, Senior District Judge.

This bankruptcy appeal, referred to the magistrate judge for a report and recommendation, comes before the court on objections by the debtor, Kristen Kae Gowin.

Standard of Review

Upon objections to a magistrate judge's report and recommendation, "the district court must undertake a de novo review of the record." Wildermuth v. Furlong, 147 F.3d 1234, 1236 (10th Cir.1998). The district court has considerable judicial discretion in choosing what reliance to place on the magistrate judge's findings and recommendations. See Andrews v. Deland, 943 F.2d 1162, 1170 (10th Cir.1991) (citing United States v. Raddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980)), cert. denied, 502 U.S. 1110, 112 S.Ct. 1213, 117 L.Ed.2d 451 (1992). When review is de novo, the district court is free to follow or wholly ignore the magistrate judge's recommendation, but it should make an independent determination of the issues without giving any special weight to the prior recommendation. Andrews, 943 F.2d at 1170 (citing Ocelot Oil Corp. v. Sparrow Industries, 847 F.2d 1458, 1464 (10th Cir.1988)). The district court is required to consider relevant evidence of record and not merely review the magistrate judge's recommendation. In re Griego, 64 F.3d 580, 584 (10th Cir.1995). In short, the district court may accept, reject, or modify the magistrate judge's findings, or recommit the matter to the magistrate judge with instructions. See 28 U.S.C. § 636(b)(1).

Procedural background

The relevant factual background stated in the magistrate's report and recommendation is unchallenged and will not be restated herein. Suffice it to say that Gowin had claims against Autos, some of which arose after her Chapter 13 petition was filed but before that plan was confirmed. Those claims arose from Gowin's purchase and Autos' repossession of an automobile. Gowin failed to disclose these claims in her plan as assets in her bankruptcy schedules but did disclose them to the bankruptcy trustee. Approximately eight months after her plan was confirmed, Gowin filed an adversary proceeding, asserting those claims against Autos.

In the adversary proceeding, Autos raised the affirmative defense that Gowin's claims should be barred because Gowin knew about them prior to her plan confirmation but had failed to raise them during the confirmation process. The bankruptcy judge rejected Auto's affirmative defense that the confirmation of Gowin's Chapter 13 plan barred Gowin's attempt to pursue claims not disclosed prior to the confirmation. The magistrate recommends reversing the bankruptcy judge, finding that "the confirmation order is res judicata for any issue that should have or could have been raised during the confirmation process." Dk. 12, p. 13. Gowin now objects, contending that the magistrate erred in so finding.

Factual finding

Gowin first challenges the magistrate's finding of fact that Gowin knew the subject vehicle had been repossessed by Autos when she filed her bankruptcy case. Gowin contends the magistrate overstepped his bounds by substituting his judgment for that of the bankruptcy court. The magistrate rejected the bankruptcy judge's finding that Gowin did not know the vehicle was repossessed when she filed her bankruptcy petition, because it found "no rational relationship to the supportive evidentiary data." Dk. 12, p. 11.

The magistrate further found that by April 9, 1999, when the plan was confirmed, Gowin was either aware of Autos's sale of the vehicle to the third party or should have been aware of the sale. Therefore, the magistrate concluded that all the claims raised by Gowin in the adversary lawsuit were either known to Gowin at the time she filed her bankruptcy petition or should have been known prior to the time her plan was confirmed by the bankruptcy court. Dk. 12, p. 11.

The finding that Gowin knew or should have known, by the date her plan was confirmed, of all the claims she raised in the adversary lawsuit is sufficient to support the magistrate's ruling. That factual finding, which is not challenged by Gowin, is fully supported by the record. Accordingly, the court has no need to determine whether the magistrate erred in its finding about what Gowin knew on the date she filed for bankruptcy.

Duty to disclose post-petition assets

Gowin next claims error in the magistrate's finding of law that "Gowin was under an obligation to amend her plan and financial statements to include new claims against Autos." Dk. 12, p. 11. Gowin contends that no statute or rule expressly requires Chapter 13 debtors such as Gowin to amend previously-filed bankruptcy schedules to include assets they acquire after the case is filed.

In determining the existence and extent of a debtor's duty to disclose, the court begins with the basic proposition, which Gowin does not challenge, see Dk. 13, p. 4, that after-acquired property constitutes property of the bankruptcy estate. The duty to disclose assets flows from the fact that after-acquired property is property of the estate.

Under Chapter 13, property of the bankruptcy estate includes, in addition to the property specified in § 541, "all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed or converted ... [and] earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted...." 11 U.S.C. § 1306(a)(1) and (2). Except as provided in a confirmed Chapter 13 plan or order confirming a plan, the debtor remains in possession of all property of the estate. 11 U.S.C. § 1306(b). For Chapter 13 to work, given that definition of property of the estate, the Chapter 13 debtor has a continuing duty to disclose property and earnings acquired after the commencement of the case. The Chapter 13 debtor's ability to confirm a plan and ultimately obtain a discharge turns, in part, on those assets and earnings. 11 U.S.C. § 1322 and 1325.

In re Wakefield, 312 B.R. 333, 338-339 (Bankr.N.D.Tex.2004).

This court agrees with the Court of Appeals for the Third Circuit that "a long-standing tenet of bankruptcy law requires one seeking benefits under its terms to satisfy a companion duty to schedule, for the benefit of creditors, all his interests and property rights." Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 (1988). See In re Superior Crewboats, Inc., 374 F.3d 330, 335 (5th Cir.2004) (quoting In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir.1999)) ("`[T]he Bankruptcy Code and Rules impose upon bankruptcy debtors an express, affirmative duty to disclose all assets, including contingent and unliquidated claims.'"); Chandler v. Samford University, 35 F.Supp.2d 861, 864 (N.D.Ala.1999) (holding Chapter 13 debtor who filed EEOC employment discrimination charge during pendency of her Chapter 13 case had affirmative duty to amend her schedules to reflect that asset); Brassfield v. Jack McLendon Furniture, Inc., 953 F.Supp. 1438 (M.D.Ala.1996) (holding Chapter 11 or 13 debtors must disclose all legal or equitable interest in property the bankruptcy estate acquires after the commencement of the estate). See generally De Leon v. Comcar Industries, Inc., 321 F.3d 1289, 1291 (11th Cir.2003) ("The need for complete and honest disclosure exists in all types of bankruptcies.") Given the definition of property of the estate, Gowin's contention that she had no continuing duty to disclose to creditors all property she acquired after the commencement of the case is meritless.

Vesting argument

Gowin next makes a "delayed vesting" or estate preservation argument. See In re Moore, 312 B.R. 902, 907 (Bankr.N.D.Ala.2004). Gowin's order confirming her plan reflects the estate preservation approach in stating that property of the bankruptcy estate revests in the debtor "upon the approval by the court of the Trustee's Final Report and Account." No such approval has yet been sought or obtained. Therefore, Gowin's claims against Autos remain property of the bankruptcy estate, which is preserved until the date the court approves the final report.

Gowin contends that because the estate is preserved even after confirmation, judicial estoppel is inapplicable. No cases are cited in support of this proposition. Case law is to the contrary. Judicial estoppel may be applicable where, as here, the estate is preserved, see cases cited in judicial estoppel section below, but not when the property is vested in the control of the debtor and is no longer property of the estate, see Muse v. Accord Human Resources, Inc., 129 Fed.Appx. 487, 488, 2005 WL 891015 (11th Cir.2005) (finding no judicial estoppel where debtor failed to disclose a claim to the bankruptcy court because claim which arose after confirmation of the bankruptcy plan was not part of the bankruptcy estate, and debtor did not have a duty to disclose it); In re Farmer, 324 B.R. 918, 922 (Bankr.M.D.Ga.2005) (finding no judicial estoppel post-confirmation because the claim was not an asset of the bankruptcy estate, as the cause of action did not arise until after confirmation, and the asset was not part of the estate).

Disclosure to trustee

Gowin next contends that even if she had a duty to disclose after-acquired property or interests, she fulfilled that duty by disclosing the claims to the Chapter 13 trustee. Autos asserts that Gowin's counsel and the trustee...