In re Arboleda
| Decision Date | 27 August 1998 |
| Docket Number | Adversary No. 98 A 00229.,Bankruptcy No. 97 B 00811 |
| Citation | 224 BR 640 |
| Parties | In re Carolina R. ARBOLEDA, Debtor. Brenda Porter HELMS, Trustee, Plaintiff, v. Carolina R. ARBOLEDA f/k/a Carolina R. Chang and Christina Lopez, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Brenda Porter Helms, Trustee, Raleigh, Helms & Finks, Wheaton, IL, for Plaintiff.
John A. Myers, Jr., Naperville, IL, for Carolina R. Arboleda.
Kent A. Gaertner, Mohr & Gaertner, Naperville, IL, for Christina Lopez.
These matters come before the Court on the motion of Brenda Porter Helms, the Chapter 7 Case Trustee (the "Trustee"), to reopen the Debtor's bankruptcy case pursuant to 11 U.S.C. § 350(b) and on the motions of the Defendants, the Debtor and Christina Lopez ("Lopez") to dismiss the complaint in the related adversary proceeding. For the reasons set forth herein, the Court denies the Trustee's motion to reopen the bankruptcy case. In addition, the Court grants in part and denies in part the motions of the Debtor and Lopez to dismiss the complaint.
The Court has jurisdiction to entertain these matters pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. They are core proceedings under 28 U.S.C. § 157(b)(2)(A), (H) and (O).
On January 10, 1997, the Debtor filed a Chapter 13 bankruptcy petition. By a notice of conversion under Federal Rule of Bankruptcy Procedure 1017(d), which was filed on February 19, 1997, the case was converted to Chapter 7. The 11 U.S.C. § 341 meeting was held on April 22, 1997, with both the Debtor and her counsel present. The Trustee conducted the meeting and the Debtor testified. Thereafter, on May 9, 1997, the Trustee filed a no-asset report. The Debtor received a discharge on August 10, 1997. The bankruptcy case was subsequently closed on August 18, 1997.
On February 4, 1998, the Trustee filed this adversary proceeding against the Debtor and her sister, Lopez. In Count I of the complaint, the Trustee contends that on February 5, 1997, the Debtor transferred $15,000.00 to Lopez post-petition in violation of 11 U.S.C. § 549(a)(1). In Count II, on information and belief, the Trustee contends that the Debtor transferred approximately $20,000.00 to Lopez pre-petition with an actual intent to hinder, delay and defraud creditors, which is avoidable under 11 U.S.C. § 548(a)(1) and recoverable under 11 U.S.C. § 550. In Count III, the Trustee alternatively alleges that the Debtor transferred approximately $20,000.00 to Lopez pre-petition with such actual fraudulent intent in violation of the Illinois Uniform Fraudulent Transfer Act, 740 ILCS 160/1 et seq. and the strong-arm powers of 11 U.S.C. § 544. In Count IV, the Trustee alternatively seeks relief for the same approximate $20,000.00 transferred to Lopez which was allegedly made for less than reasonably equivalent value in violation of 11 U.S.C. §§ 544 and 550 and 740 ILCS 160/6(a). Additionally, in Count V, the Trustee seeks to revoke the Debtor's discharge pursuant to 11 U.S.C. § 727(d) for her alleged failure to disclose all assets on her schedules and all transfers (apparently the ones referred to in Counts I-IV).
On April 8, 1998, Lopez filed a motion to dismiss the complaint. Thereafter, on May 22, 1998, the Debtor also filed a motion to dismiss the complaint. The Defendants contend that the complaint should be dismissed for a "lack of personal or subject matter jurisdiction" resulting from the closure of the bankruptcy case in August, 1997. In addition, the Defendants argue that the statutes of limitations under 11 U.S.C. §§ 546(a), 549(d) and 550(f) bars Counts I-IV of the complaint. Also, the Defendants maintain that the property allegedly transferred by the Debtor has been effectively abandoned by the Trustee and the case fully administered under 11 U.S.C. § 554(c). Finally, they contend that in Counts II-V, the Trustee has failed to plead the alleged fraudulent transfers and other wrongful conduct with particularity as required by Federal Rule of Civil Procedure 9(b).
On July 7, 1998, the Trustee filed a motion to reopen the bankruptcy case and vacate the filing of the no-asset report. Both Defendants oppose the motion to reopen the case. The Court will discuss each motion in turn.
The Trustee's motion to reopen the bankruptcy case is based on the matters alleged in the related adversary proceeding. She contends that the Debtor's transfers to Lopez "may have" been fraudulent. Both Lopez and the Debtor object to the reopening of the bankruptcy case almost eleven months after it was closed and the Debtor received her discharge. They filed separate responses through their respective counsel with almost identical arguments. They contend that the pre-petition transfers from the Debtor to Lopez were fully disclosed to the Trustee in the Debtor's Statement of Financial Affairs and at the § 341 meeting by way of the Debtor's testimony. See Exhibits A and B to Response of Lopez to Trustee's Motion to Reopen Case and Exhibits A and B to Response of Debtor to Trustee's Motion to Reopen Case. In addition, they argue that the Trustee was also made aware of the Debtor's transfers to Lopez because an earlier adversary proceeding (97 A 00889) was filed on June 23, 1997, by the Debtor's former spouse against the Debtor and Lopez with respect to the pre-petition transfers. See Exhibit D to Response of Lopez to Trustee's Motion to Reopen Case. The Trustee was on the service list for four motions that were filed in that adversary proceeding and thus had actual notice of that proceeding and the contents thereof. See Exhibit C to Response of Lopez to Trustee's Motion to Reopen Case.
According to the Defendants, the Trustee was aware of the transfers between February 19, 1997, the date of conversion of the bankruptcy case from Chapter 13 to Chapter 7, and August 10, 1997, the date of the Debtor's discharge. Despite this knowledge, she took no action to further investigate the nature of the transactions. It was not until approximately six months after the Debtor's bankruptcy case was closed that the Trustee filed the instant adversary proceeding against the Debtor and Lopez, and it was not until July, 1998, that she sought to reopen the closed bankruptcy case. The Defendants contend that the Trustee has not been reasonably diligent and is barred by the doctrine of laches. They argue that they are burdened with the fees and costs of defending these matters long after the Trustee was made aware of the transfers, filed her no-asset report and the case was closed.
Section 350(b) of the Bankruptcy Code allows for the reopening of a case to administer assets. This section provides:
A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.
11 U.S.C. § 350(b). The Court has broad discretion when it comes to reopening cases; § 350(b) is not mandatory. In re Bianucci, 4 F.3d 526, 528 (7th Cir.1993) (citing In re Shondel, 950 F.2d 1301, 1304 (7th Cir.1991)); White v. Boston, 104 B.R. 951, 958 (S.D.Ind. 1989) (). Although no time limit is specified during which a motion to reopen must be filed, such a motion must be filed within a reasonable time and laches may justify the denial of the motion. In re Frontier Enters., Inc., 70 B.R. 356, 359 (Bankr.C.D.Ill.1987). In order to reopen a case under § 350(b) and Federal Rule of Bankruptcy Procedure 5010 to administer assets, the assets must not be known at the time the case was closed. See 3 L. King, Collier on Bankruptcy ¶ 350.031 at 350-5 (15th ed. rev.1998).
Furthermore, 11 U.S.C. § 554(c), which deals with abandonment of property of the estate, provides:
(c) Unless the court orders otherwise, any property scheduled under section 521(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.
11 U.S.C. § 554(c). Section 554(c) provides for a "technical abandonment" of property of the estate. In re Ozer, 208 B.R. 630, 632 (Bankr.E.D.N.Y.1997). In determining whether a Chapter 7 trustee who has been discharged has standing to make a motion to reopen a case, courts have considered the language of § 554(c) "unless the court orders otherwise. . . ." Id. at 633. Courts have held that this language grants the authority to reopen a bankruptcy case and undo a technical abandonment under appropriate circumstances. Id. at 633 (). The determination as to whether appropriate circumstances exist include: (1) whether denial of the motion would result in an injustice to creditors; (2) whether the trustee was initially afforded the ability to make an informed decision with respect to administering the asset; (3) whether the debtor substantially improved the abandoned property; (4) whether the failure to properly administer the property was the trustee's fault; and (5) whether significant time has passed since the trustee abandoned the property. Id.
The Court has considered all of these factors. No clear showing has been made by the Trustee of any injustice to creditors from the denial of her motion. She had ample opportunity to investigate the transfers disclosed by the Debtor, but instead, for unspecified reasons, quickly filed a no-asset report. Any failure to timely take action to avoid the transfers lies with the Trustee. It was not until almost nine months later she filed this...
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