In re Chappel

Decision Date01 November 1995
Docket NumberBAP No. NV-95-1249-RAsMe. Bankruptcy No. N-89-31093. Adv. No. 91-042.
Citation189 BR 489
PartiesIn re Jordan H. CHAPPEL, a/k/a Silver State Machine & Tool Co., a/k/a Marin Automatics, Debtor. Jordan H. CHAPPEL, a/k/a Silver State Machine & Tool Co., a/k/a Marin Automatics, Appellant, v. James S. PROCTOR, Trustee, and Krupka & Associates, Appellees.
CourtU.S. Bankruptcy Appellate Panel, Ninth Circuit

Paul J. Williams, Robert H. Broili, Reno, NV, for appellant Jordan H. Chappel.

J. William McNulty, Reno, NV, for appellee James Proctor.

M. Celeste Luce, Reno, NV, for appellee Krupka & Assoc.

Before: RUSSELL, ASHLAND, and MEYERS, Bankruptcy Judges.

OPINION

RUSSELL, Bankruptcy Judge:

I. FACTS

On August 23, 1989, the debtor, Jordan H. Chappel ("Chappel" or "debtor"), filed for bankruptcy relief under chapter 11.1 On August 19, 1989, four (4) days before the debtor filed his petition, the debtor's mother, Nadine M. Hunter ("Hunter" or "testatrix") died.

At the time of her death, Hunter was a resident of California and the assets in her estate were also located in California. Hunter held certain of her assets in trust and the rest were bequeathed by will. The debtor and his only sister, Jordine Wood ("Wood") were named as co-beneficiaries of the trust and legatees under the will. Hunter's estate ("probate estate") had an estimated value of over $2 million dollars.

On October 2, 1989, the debtor, as executor of Hunter's estate, filed a petition for probate of the will, for letters testamentary of the estate and for authorization to administer the estate. Wood objected to the petition and later filed her own petition for probate and for authorization to administer the estate. Wood's objection was based upon alleged wrongdoing by the debtor which included the alleged withdrawal of $13,975 from Hunter's bank account on October 30, 1989. The debtor subsequently filed an objection to Wood's petition.

On May 16, 1990, the siblings entered into a stipulation for compromise, release and settlement ("the compromise"), which was filed in the Humboldt Superior Court and approved by the bankruptcy court on July 10, 1990. The compromise settled the dispute between the siblings over the probate estate and required the debtor to obtain bankruptcy court approval prior to receiving any distribution from Hunter's estate.

On February 7, 1991, upon motion by the United States Trustee, the debtor's chapter 11 case was converted to chapter 7 and James S. Proctor was appointed the chapter 7 trustee ("trustee").

On July 13, 1994, the debtor filed a motion for an order to show cause why the trustee should not be removed, or in the alternative, whether the probate estate constituted an asset of the bankruptcy estate. On July 15, 1994, the bankruptcy court issued an order staying any distribution of the debtor's interest from the probate estate and set a briefing schedule on the issue of whether the debtor's interest in the probate estate was an asset of the bankruptcy estate.

Both the debtor and the trustee filed briefs, and Krupka & Associates ("Krupka"), a creditor of the estate and a third-party appellee in this appeal, submitted a third-party brief.2 On January 6, 1995, the bankruptcy court issued an order finding that the debtor's interest in the probate estate was property of the bankruptcy estate.3

On January 17, 1995, the debtor filed a motion to alter or amend the order. The motion was heard on February 13, 1995. On February 23, 1995, the bankruptcy court denied the debtor's motion.4 The debtor filed this timely appeal.

II. ISSUES

Whether a debtor's interest in a probate estate is property of the estate pursuant to § 541(a)(1) when the testatrix dies prepetition and the will is admitted to probate more than one hundred and eighty (180) days after the bankruptcy petition is filed.

III. STANDARD OF REVIEW

A bankruptcy court's interpretations of bankruptcy statutes and relevant state law are conclusions of law, reviewed de novo. Hillis Motors, Inc. v. Hawaii Auto. Dealers' Ass'n, 997 F.2d 581, 585 (9th Cir.1993); In re Crosby, 176 B.R. 189, 192 (9th Cir. BAP 1994).

IV. DISCUSSION

The debtor argues that his interest in the probate estate is not property of the bankruptcy estate because he did not acquire an interest in the probate estate until the will was entered into probate, more than one hundred and eighty (180) days after the filing of his bankruptcy petition.5 Specifically, the debtor contends that because his interest was a mere expectancy until the will was probated, his interest is not property of the estate pursuant to § 541(a)(1) or (5).

In response, the chapter 7 trustee contends that the debtor acquired an interest in the probate estate on the date of the testatrix's death. The testatrix died prepetition and thus the debtor's interest is property of the estate pursuant to § 541(a)(1).

A. The probate estate interest as property of the estate

The existence and scope of a debtor's interest in a given asset is determined by state law. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 917, 59 L.Ed.2d 136 (1979); In re Farmer's Markets, Inc., 792 F.2d 1400, 1402 (9th Cir.1986). In the instant case, we apply California law because the probate estate is located in California. Matter of Gervich, 570 F.2d 247, 251 (8th Cir.1978). Accordingly, the first issue in this case is simply when, under California law, the debtor obtained an interest in the probate estate.

The California Probate Code provides in relevant part:

§ 7000. Passage to devisee or intestate heirs
Subject to Section 7001, title to decedent\'s property passes on the decedent\'s death to the person to whom it is devised in the decedent\'s last will or, in the absence of such a devise, to the decedent\'s heirs as prescribed in the laws governing intestate succession.

CAL.PROB.CODE § 7000 (WEST 1991).

The statute is clear that title to a decedent's property passes to the beneficiary at time of death. See also Neustadter v. United States, 90 F.2d 34, 38 (9th Cir.1937); Wells Fargo Bank & Union Trust Co. v. United States, 245 F.2d 524, 534 (9th Cir. 1957); Allen v. Markham, 156 F.2d 653 (9th Cir.1946), rev'd in part on other grounds and aff'd in part sub nom., Clark v. Allen, 331 U.S. 503, 67 S.Ct. 1431, 91 L.Ed. 1633 (1947). Thus, in the instant case, the debtor acquired an interest in the probate estate when the testatrix died on August 19, 1989, which was four (4) days before the debtor filed his bankruptcy petition.6

Without any reference to state law, the debtor argues that his interest in the probate estate was a mere expectancy and not property of the bankruptcy estate until the will was admitted to probate.7 This panel disagrees with the debtor's argument. First, the debtor's argument ignores that state law is the starting point for determining whether he has a property interest in the probate estate. Under California law, the debtor acquired rights under the will on the date the testatrix died. This interest can hardly be characterized as a mere expectancy, regardless of the status of the probate proceedings.

After establishing the debtor's interest under state law, we turn to the second issue of whether the interest in the probate estate is property of the bankruptcy estate. Section 541 sets the uniform standard for determining whether an interest is included as property of the bankruptcy estate. Section 541(a)(1) provides in relevant part:

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of commencement of the case.

11 U.S.C. § 541(a)(1) (emphasis added).

In the instant case, the bankruptcy estate was created August 23, 1989, the date the debtor filed for chapter 11 relief. On this date, the debtor's interests, including his interest in the probate estate that he acquired four (4) days earlier, transferred to the bankruptcy estate. § 541(a)(1); Farmers Markets, 792 F.2d at 1402. We conclude the debtor's right to a distribution from the probate estate of a testatrix who died prepetition is property of the estate, even if the bequest had not been distributed at the time the debtor filed for bankruptcy.

1. The debtor misconstrues § 541

In reaching our conclusion that the interest is property of the estate, this panel rejects the debtor's construction of § 541. The debtor mistakenly contends that the phrase "the following property" in § 541(a) is designed to limit the scope of "all legal or equitable interests of the debtor in property as of the commencement of the case" set forth in subsection (a)(1). According to the debtor, subsection (a)(1) is followed by six (6) subsections which limit the scope of "all legal and equitable interests". Therefore, according to the debtor, "all interests" does not mean "all", but means only those interests set forth in subsections (a)(2) through (7).8

The precise language of § 541(a)(1) is "all legal or equitable interests of the debtor in property as of the commencement of the case". The legislative history of the Bankruptcy Code reveals that the concept of property of the estate is to be interpreted broadly. H.R.Rep. No. 595, 95th Cong., 1st Sess. 367-68 (1977), reprinted in U.S.C.C.A.N. 5787, 5963, 6323-24. Similarly, the Supreme Court has affirmed that the scope of § 541(a)(1) is broad, covering all kinds of property, including tangible or intangible causes of action and all other forms of property previously specified in § 70(a) of the Bankruptcy Act. United States v. Whiting Pools, Inc., 462 U.S. 198, 204-05 & n. 9, 103 S.Ct. 2309, 2314 & n. 9, 76 L.Ed.2d 515 (1983).

The debtor's argument that subsections (a)(2) through (a)(7) impose limits on...

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  • Copelan v. Techtronics Indus. Co.
    • United States
    • U.S. District Court — Southern District of California
    • March 27, 2015
    ...estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case”); In re Chappel, 189 B.R. 489, 493 (9th Cir. BAP 1995) (“[T]he scope of § 541(a)(1) is broad, covering all kinds of property, including tangible or intangible causes of action..........

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