In re Coomer, 07-3068.

• Decision Date: 17 August 2007
• Docket Number: No. 07-3068.,No. 06-33481.,07-3068.,06-33481.
• Citation: 375 B.R. 800
• Parties: In re Ronald COOMER, Debtor. Bruce C. French, Trustee, Plaintiff, v. M.A. Johnson, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

375 B.R. 800

In re Ronald COOMER, Debtor Bruce C. French, Trustee, Plaintiff, v. M.A. Johnson, Defendant.

No. 07-3068.

No. 06-33481.

United States Bankruptcy Court, N.D. Ohio.

August 17, 2007.

COPYRIGHT MATERIAL OMITTED

Bruce C. French, pro se.

Randy Lee Reeves, Lima, OH, for Defendant.

MEMORANDUM OPINION AND DECISION

RICHARD L. SPEER, Bankruptcy Judge.

This cause comes before the Court on the Plaintiff/Trustee's Motion for Summary Judgment and Memorandum in Support, and the Defendant's Response thereto. The Motion for Summary Judgment is brought on the Plaintiff/Trustee's Complaint for Turnover of Estate Property. This Court has now had the opportunity to review the arguments of the Parties, the exhibits, as well as the entire record of the case. Based upon that review, and for the following reasons, the Court finds that the Plaintiff/Trustee's Motion for Summary Judgment should be Denied.

FACTS

On November 23, 2006, the Debtor, Ronald Glen Coomer, filed a voluntary petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. The Plaintiff; Bruce French, was appointed trustee of the Debtor's bankruptcy estate. The Plaintiff continues to serve in this capacity.

At the time he filed his petition for relief, the Debtor maintained on deposit the sum of $750.00 with the Defendant, M.A. Johnson. Said deposit was previously given as security for a residential lease entered into between the Defendant, as the landlord, and the Debtor as the tenant. The Debtor did not make, nor does the Debtor now assert any right to an exemption in the funds held on deposit by the Defendant. By way of this action, the Trustee now seeks the turnover of the funds held on deposit by the Defendant.

DISCUSSION

The action before the Court is the Trustee's Complaint for Turnover of Estate Property. The adjudication of matters Concerning the turnover of estate property are deemed to be core proceedings over which this Court has the jurisdictional authority to enter final orders and judgments. 28 U.S.C. § 157(b)(2)(E).

On his Complaint for Turnover of Property, the Trustee seeks Summary Judgment. Under the Federal Rules of Civil Procedure, made applicable to this proceeding by Bankruptcy Rule 7056, a party will prevail on a motion for summary judgment when, "[T]he pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); FED.R.Civ.P. 56(c). In order to prevail, the movant must demonstrate all the elements of the cause of action, but once that burden is established, the opposing party may not merely rest upon their pleadings. R.E. Cruise, Inc. v. Bruggeman, 508 F.2d 415, 416 (6th Cir.1975). Instead, upon the moving party meeting their burden, the opposing party must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-51, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). All inferences drawn from the underlying facts must, however, be viewed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-588, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); see also In re Bell 181 B.R. 311 (Bankr.N.D.Ohio 1995).

The Trustee brings his Complaint for "Turnover" under § 542. (Doc. No. 1). Subsection (a) of this provision provides:

Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.

Subject therefore to its applicable exceptions, § 542(a) allows a trustee to obtain the turnover of any property which can be used or sold or which the debtor can claim as exempt.

Generally, a trustee can only use or sell property of the estate. 11 U.S.C. § 363(b)(l). Likewise, a debtor may only exempt property of the estate. 11 U.S.C. § 522(b)(1). Thus, although not specifically stated in 542, fundamental to the concept of "Turnover" is that the asset to be turned over must be property of the debtor's bankruptcy estate. In re Sims, 278 B.R. 457, 475 (Bankr.E.D.Tenn.2002).

The bankruptcy estate arises at the commencement of a case. 11 U.S.C. § 541(a). The bankruptcy trustee is deemed to be the representative of the estate, with the "capacity to sue and be sued." 11 U.S.C. § 323. To this end, it is the Trustee's position that he is entitled to the turnover of the security deposit held by the Defendant in this matter because "there can be no dispute that the deposit being held by the Defendant at the time of the bankruptcy filing, became property of the estate by virtue of 11 U.S.C. § 541." (Doc. No. 10, at pg. 3).

Property of the estate is defined by the Bankruptcy Code as being comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). This definition of estate property is intentionally broad and will reach to bring within the estate every conceivable interest that the debtor may have in property, including that which typifies the very nature of a security deposit: a future and nonpossessory interest maintained by a debtor in property held by another. McGahren v. First Citizens Bank & Trust (In re Weiss), 111 F.3d 1159, 1166 (4th Cir.1997); In re World Access, Inc., 324 B.R. 662, 680-81 (Bankr.N.D.Ill.2005). In this way, a deposit given for security under a lease may be generally defined as "[m]oney placed with a person as an earnest or security for the performance of some contract, to be forfeited if the depositor fails in his undertaking." BLACK'S LAW DICTIONARY 438 (6th ed.1990).

Yet, contrary to the position taken by the Trustee, the actual security deposit held by the Defendant does not become apart of the Debtor's bankruptcy estate. Rather, § 541(a) specifies that the estate is comprised of only the debtor's "interest" in property, not the actual property. This distinction is more than just academic.

Section 541(a), by limiting the scope of estate property to just that of the debtor's "interest" in the property, does not expand or change the scope of the debtor's interest in the asset. Matter of Sanders, 969 F.2d 591 (7th Cir.1992). Rather, § 541(a) merely places that "interest" in the bankruptcy estate. However, the estate's interest remains identical to and also limited to those interests held by the debtor when the petition was filed. "Whatever rights a debtor had at the commencement of the case continue into bankruptcy-no more, no less." Moody v. Amoco Oil Co., 734 F.2d 1200, 1213 (7th Cir. 1984).

It necessarily follows then that the trustee, as a representative of the estate, takes a debtor's property subject to same restrictions that existed on the debtor as of the commencement of case. Matter of Sanders, 969 F.2d 591 (7th Cir.1992). Similarly, the trustee is generally subject to any defenses "which might have been asserted against the [debtor] but for the filing of the petition." Bank of Marin v. England, 385 U.S. 99, 101, 87 S.Ct. 274, 276, 17 L.Ed.2d 197 (1966). In this matter, therefore, the Trustee's right to the security deposit held by the Defendant is derived from the Debtor's "interest" in the deposit. And to the extent that this "interest" is limited in the hands of the Debtor, it is equally limited in the hands of the Trustee. In re Greer, 242 B.R. 389, 397 (Bankr.N.D.Ohio 1999).¹

While bankruptcy law determines whether a debtor's "interest" in property ultimately becomes included within the bankruptcy estate for purposes of § 541(a), the actual existence and extent of a debtor's "interest" in property are initially defined by applicable nonbankruptcy law, usually state law. Butner v. U.S., 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979); Abboud v. The. Ground Round, Inc. (In re Ground Round), 482 F.3d 15, 17 (1st Cir.2007). In this matter, therefore, because all the events giving rise to this controversy occurred in the state of Ohio, it can be assumed that Ohio law governs the scope of the Debtor's interest in the security deposit held by the Defendant.

Under Ohio law, the landlord-tenant relationship arises as the result of contract, — commonly under the terms of a lease agreement. 65 OHIO JUR.3D Landlord and Tenant § 12A (2007). A security deposit is an incident of the lease agreement, and thus as with a lease, it is contractual in character. Grubbs v. Rine, 39 Ohio Misc. 67, 82, 315 N.E.2d 832, 841 (C.P.1974). Under § 541(a), the rights that a debtor has under a contract, including a lease, are included within the bankruptcy estate, and thereby subject to administration by the trustee. Ralar Distributors, Inc. v. Rubbermaid, Inc. (In re Ralar), 4 F.3d 62, 67 (1st Cir.1993).

The contractual character of a security deposit has been defined, by Ohio law, as a personal obligation in the nature of a pledge between the landlord and the tenant. Castlebrook Ltd. v. Dayton Properties Limited Partnership, 78 Ohio App.3d 340, 348, 604 N.E.2d 808, 813 (1992). The pledge consists of mutually dependent promises whereby a lessee makes a payment of money to the lessor in exchange for the promises of the return of that money to the lessee upon the happening of certain conditions. Skerl v. Sheet Metal Products Co., Cuyahoga Cty.App. No. 43743, unreported, *6-7 (July 1, 1982). Consistent with these characteristics, the Ohio Landlord Tenant Act, which applies to the Parties' relationship,² defines a security deposit to mean ...