In re Brian Richard Brubaker And Cynthia Ann Brubaker

• Decision Date: 06 January 2011
• Docket Number: No. 2:10–cv–358–FtM–29.,Bankruptcy No. 9:09–bk–13722–ALP.,2:10–cv–358–FtM–29.
• Citation: In re Brian Richard Brubaker And Cynthia Ann Brubaker, 443 B.R. 176 (M.D. Fla. 2011)
• Parties: In re Brian Richard BRUBAKER and Cynthia Ann Brubaker, Debtors.Brian Richard Brubaker and Cynthia Ann Brubaker, Appellants,v.Diane L. Jensen, Trustee, Appellee.
• Court: U.S. District Court — Middle District of Florida

443 B.R. 176

In re Brian Richard BRUBAKER and Cynthia Ann Brubaker, Debtors.Brian Richard Brubaker and Cynthia Ann Brubaker, Appellants,

v.Diane L. Jensen, Trustee, Appellee.

No. 2:10–cv–358–FtM–29.

Bankruptcy No. 9:09–bk–13722–ALP.

United States District Court, M.D. Florida,Fort Myers Division.

Jan. 6, 2011.

Kevin Christopher Gleason, Kevin Gleason P.A., Hollywood, FL, for Appellants.

Diane Lynne Jensen, Pavese Law Firm, Ft. Myers, FL, for Appellee.

OPINION AND ORDER

JOHN E. STEELE, District Judge.

This matter comes before the Court on an appeal from the Bankruptcy Court's April 1, 2010 Order Denying Debtors' Motion for Reconsideration of Order Sustaining Trustee's Objection to Amended Claim of Exemption (Doc. # 1–2).¹ Appellants filed an Initial Brief (Doc. # 6), appellee filed a responsive Initial Brief (Doc. # 8), and appellants filed a Reply Brief (Doc. # 9).

Brian Richard Brubaker and Cynthia Ann Brubaker (collectively the Brubakers or Debtors) wrote checks totaling $513.00, which were not negotiated by the drawees prior to the filing of Debtors' June 26, 2009, Chapter 7 petition. The Bankruptcy Court found that the checks were written “in the ordinary course” and Debtors were not acting in bad faith or with fraudulent intent. (Doc. # 1–2, p. 8.) A Chapter 7 trustee was appointed on June 29, 2009. After the checks were negotiated, the Trustee requested and obtained a turnover order from the Bankruptcy Court directing the Debtors to pay the $513.00 to the bankruptcy estate. The Debtors appeal the decision denying reconsideration of that order.

After examination of the briefs and record, the Court finds that the decisional process would not be significantly aided by oral argument, and the parties have not requested oral argument. For the reasons set forth below, the Court affirms the decision of the Bankruptcy Court.

I.

The United States District Court functions as an appellate court in reviewing decisions of the United States Bankruptcy Court. In re Colortex Indus., Inc., 19 F.3d 1371, 1374 (11th Cir.1994). The legal conclusions of the bankruptcy court are reviewed de novo, while findings of fact are reviewed for clear error. In re Globe Mfg. Corp., 567 F.3d 1291, 1296 (11th Cir.2009). A finding of fact is clearly erroneous when, “although there is evidence to support it, the reviewing court on the entire record is left with a definite and firm conviction that a mistake has been committed.” Crawford v. W. Electric Co., Inc., 745 F.2d 1373, 1378 (11th Cir.1984) (citing United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)); In re Walker, 515 F.3d 1204, 1212 (11th Cir.2008).

II.

The Court adopts the following undisputed facts and procedural history, as set forth in the Bankruptcy Court's Order denying reconsideration:

On June 26, 2009, the Debtors filed their Petition for Relief pursuant to Chapter 7 of the Bankruptcy Code. On July 7, 2009, the Debtors filed their initial Schedule B indicating the sum of $513.00 was being held in a joint checking account (Doc. No. 12). However, the Debtors failed to claim any property as exempt on their Schedule C. On July 10,2009, the Debtors filed their Amended Schedule C which included the $513.00 as exempt pursuant to Art. 10 § 4(a)(2) of the Florida Constitution and pursuant to Fla. Stat. § 222.061 (Doc. No. 15). On July 14,2009, this Courted entered its Order Striking the Amendment since the Amendment failed to contain an appropriate proof of service in compliance with Fed. R. Bank. P. 1009(a) (Doc. No. 18). On August 5, 2009, the Debtors filed their Amended Schedules and complied with the requirements set forth in Fed. R. Bank. P. 1009(a) (Doc. No. 20).

On August 19, 2009, Diane L. Jensen, the Chapter 7 Trustee (the Trustee), filed her Objection to Debtors' Claim of Exemptions (Doc. No. 25). The Trustee objected to the Debtors claim of exempt property consisting of everything listed on the Debtors' Amended Schedule C except for the Jaguar and the Debtors' IRAs. In her Objection the Trustee specifically objected to the Debtors' bank account totaling the sum of$5,862.38 as of the date of the filing, rather than the sum scheduled. The Trustee argue[d] that because the funds in question were still in the Debtors' bank account on the date they filed their Petition for Relief, the monies in the Debtors' bank account became property of the estate pursuant to Section 542 of the Bankruptcy Code as of the date filing date.

On September 9, 2009, the Debtors' filed Debtors' Response to Trustee's Objection to Claim of Exemption (Doc. No. 34). It is the Debtors' contention that they claimed the amount of $513.00 as exempt. The Debtors' contend that the Trustee's position that a debtor is responsible for checks honored by the bank after the date of the filing of a petition is unsupported. The Debtors' contend that the position of the Trustee is contrary to the position explained in the Debtors' Schedules. In support of their position, the Debtors in their Response to the Trustee's Objection rely on the case of In re Pyatt, 486 F.3d 423, (8th Cir.2007). It is the Debtors position that the checks written pre-petition, but negotiated post-petition, should be deducted from the account balances and the Pyatt case is consistent with the following provisions of the Code, which is the authority for omitting checks which have been sent pre-petition. See In re Pyatt, 486 F.3d 423, 429 (8th Cir.2007).

On October 1, 2009, the Debtors filed their Amended Schedule B and Schedule C (Doc. No. 39). On October 5, 2009, the Trustee filed Trustee's Objection to Debtor's Amended Claim of Exemption (Doc. No. 42). The Trustee in her Objection repeated her Objection to Debtors Claim of Exemption (Doc. No. 25), filed on August 19, 2009, to the extent that it is necessary to preserve the claims raised in her prior objection. On October 26, 2009, the Debtors filed Debtors' Response to Trustee's Objection to Amended Claim of Exemption (Doc. No. 45) which makes reference to the Debtors prior response filed on September 9, 2009 (Doc. No. 34). Based on the foregoing, the Debtors' request that this Court enter an order overruling the Trustee's Objection to their exemptions.

On February 5, 2010, at the duly scheduled and noticed hearing on the Trustee's Objections (Doc. Nos. 25 and 42), and the Debtors' Responses in Opposition to the Trustee's Objections (Doc. Nos. 34 and 45), this Court heard argument of the Trustee and counsel for the Debtors and determined that the money in the Debtors' bank account on the date the Debtors filed their Petition for Relief was property of the bankruptcy estate. On February 10, 2010, this Court entered its Order Sustaining the Trustee's Objection to Debtors' Claim of Exemption (Doc. No. 64). Based on this Court's Order Sustaining the Trustee's Objection, the Debtors filed the current Motion for Reconsideration which is the current matter under consideration.

(Doc. # 1–2, pp. 1–3.) See also In re Brubaker, 426 B.R. 902 (Bankr.M.D.Fla.2010).

On reconsideration, the Bankruptcy Court affirmed its prior decision. The Bankruptcy Court found that the Debtors' interest in their bank account became property of the estate upon the filing of their Chapter 7 petition, and that as of that date the Debtors' had control over the funds as to which they had written checks to their creditors. Based upon this, the Bankruptcy Court found that “once the Trustee established the balance in Debtors' checking account on the date they filed for bankruptcy, the Trustee would be entitled to turnover of nonexempt portion of such funds, with no reduction for checks which the Debtors had written pre-petition, but which had not cleared their account as of the commencement of the bankruptcy case.” (Doc. # 1–2, pp. 8–9.)

III.

Debtors argue that the Bankruptcy Court erred in ordering Debtors to “turn over” $513.00 they no longer possessed or controlled. Debtors argue that the Bankruptcy Court's order: (1) imposed additional duties on the Debtors which are not specified by the Bankruptcy Code; (2) ignores statutory permission for pre—petition checks to be honored post-petition; and (3) ignores Eleventh Circuit precedent holding a debtor is not a proper party from whom to recover an avoidable transfer. (Doc. # 6, pp. 3–7.)

A.

The threshold issue is whether the funds represented by the written and delivered, yet uncashed, checks became property of the bankruptcy estate as of the filing of the Chapter 7 petition. The Bankruptcy Court held that the funds were property of the Chapter 7 estate, and the Court agrees.

The filing of a petition under Chapter 7 of the Bankruptcy Code commences the bankruptcy case. In re Alvarez, 224 F.3d 1273, 1276 n. 4 (11th Cir.2000). The commencement of a bankruptcy case creates a bankruptcy estate, 11 U.S.C. § 541(a), which includes (with certain exceptions not applicable to this case) “all legal or equitable interests of the debtor in property as of the commencement of the case” “wherever located and by whomever held.” 11 U.S.C. § 541(a)(1). This bankruptcy estate is created at the moment the Chapter 7 petition is filed. Alvarez, 224 F.3d at 1277. Thus, “[u]pon a debtor's filing of a bankruptcy petition, his legal and equitable interests in property become the property of the bankruptcy estate.” Old West Annuity & Life Ins. Co. v. Apollo Group, 605 F.3d 856, 862 (11th Cir.2010) (citing 11 U.S.C. § 541(a)(1)).

“In the absence of any controlling federal law, ‘property’ and ‘interests in property’ are creatures of state law.” Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992). Barnhill held that the funds represented by a check are not transferred until the check is honored by the bank. Id. at 399–400, 112 S.Ct. 1386. Similarly, under Florida law the funds represented by a check remain in the drawer's possession and control, even after the check has been written and delivered to a drawee, until...