In re Hutchinson, Bankruptcy No. B-81-01653 C-7

• Decision Date: 12 July 1991
• Docket Number: Adv. No. A-83-0082.,Bankruptcy No. B-81-01653 C-7
• Citation: 132 BR 827
• Court: U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re John Everett HUTCHINSON and Ruth Laura Davis Hutchinson, Debtors. YADKIN VALLEY BANK & TRUST COMPANY, John Everett Hutchinson, and Ruth Laura Davis Hutchinson, Plaintiffs, v. NORTHWESTERN BANK, Chore Boy, Inc., Dairymen, Inc., and Linda McGee, trustee, Defendants.

132 B.R. 827 (1991)

In re John Everett HUTCHINSON and Ruth Laura Davis Hutchinson, Debtors YADKIN VALLEY BANK & TRUST COMPANY, John Everett Hutchinson, and Ruth Laura Davis Hutchinson, Plaintiffs, v. NORTHWESTERN BANK, Chore Boy, Inc., Dairymen, Inc., and Linda McGee, trustee, Defendants.

Bankruptcy No. B-81-01653 C-7, Adv. No. A-83-0082.

United States Bankruptcy Court, M.D. North Carolina.

July 12, 1991.

COPYRIGHT MATERIAL OMITTED

R. Bradford Leggett, Winston-Salem, N.C., for defendant trustee.

Daniel J. Park, Elkin, N.C., for plaintiffs.

MEMORANDUM OPINION

JERRY G. TART, Bankruptcy Judge.

This matter came on for trial on September 17, 1990, upon the complaint of the plaintiffs, Yadkin Valley Bank & Trust Company, John Everett Hutchinson and Ruth Laura Davis Hutchinson, seeking to recover damages from the defendant trustee, Linda McGee, for negligence in the performance of her duties as trustee. Daniel J. Park appeared as counsel for the plaintiffs; R. Bradford Leggett appeared as counsel for the defendant trustee. The court has carefully considered the evidence presented, the arguments of counsel, the pleadings, briefs and official court file and, for the reasons set out below, finds that the plaintiffs are not entitled to recover damages from the defendant trustee in this matter.

I. Summary of the Facts

On July 15, 1981, John Everett Hutchinson and Ruth Laura Hutchinson ("the Hutchinsons") filed a joint petition under Chapter 7 of the United States Bankruptcy Code. Linda McGee was subsequently appointed by the court as the trustee in the Hutchinsons' bankruptcy case.

At the time that the petition was filed, the Hutchinsons owned a fully equipped 91-acre dairy farm located in Wilkes County, North Carolina. The real property, valued by the Hutchinsons on their schedules at $150,000.00, was encumbered by two mortgages: a first mortgage to R.A. Newman with an approximate balance of $62,000.00 and a second mortgage to Yadkin Valley Bank & Trust Company ("Yadkin Valley Bank") with an approximate balance of $34,430.00. The improvements to the real property, including the farmhouse, barn, shed, silos and dairy equipment, were not separately valued on the schedules, although the Hutchinsons did indicate that there was a $16,600.00 lien on the dairy equipment in favor of Northwestern Bank. In addition to the dairy farm, the Hutchinsons scheduled various items of personal property, including farm equipment, tools, vehicles and a mobile home, and the liens thereon. There were no dairy cattle on the farm at the time that the petition was filed.

The Hutchinsons' original claims for exemptions, which were filed with the petition and schedules, did not include any real property exemption in the dairy farm. Several months later the Hutchinsons requested, and received, authority from the court to amend their property exemptions. There were no objections to the amended exemptions, in which the Hutchinsons each claimed a $7,500.00 exemption in the real property.

In early September, 1981, the trustee received from a neighboring dairy farmer, Bert Holbrook, a written offer to purchase the Hutchinsons' dairy farm for $135,000.00. The offer specifically included the dairy equipment as well as the real property. Thereafter, the trustee investigated Holbrook's offer by conducting interviews, checking credit references and examining the real property records. The trustee also determined (after investigation) that the secured creditors would consent to transfer their liens to proceeds and that the Hutchinsons would waive their homestead exemptions in order to facilitate the private sale of the farm. By letter dated December 14, 1981, the trustee informed Holbrook that his offer would be presented to the court for approval.

The trustee was in the process of preparing the documentation required by the court for private sales of real property when she was informed by Bert Holbrook in early January, 1982, that some of the dairy equipment had been removed from the farm and that, as a result, he was reducing his offer to $122,000.00. After further investigation, the trustee found Holbrook's new offer to be acceptable and proceeded to complete the necessary documentation, which included: (1) an application to sell the property with a supporting appraisal; (2) consent orders transferring the liens of the secured creditors to proceeds; and (3) voluntary waivers of homestead exemptions for the Hutchinsons. The trustee mailed the consent orders and the voluntary waivers to the secured creditors and the debtors. Within the next few weeks the trustee received the signed consent orders from the secured creditors; however, the trustee never received the voluntary waivers from the debtors.

By April 1, 1982, all of the documentation necessary to complete the sale of the Hutchinsons' farm had been filed with the court. The Application to Sell was set for hearing and, on April 14, 1982, the court approved the sale of the dairy farm to Bert Holbrook for $122,000.00. Almost immediately thereafter the trustee learned that the remaining dairy equipment had been removed from the farm in late March, 1982. As a result of the second removal of equipment, Holbrook refused to complete the sale at $122,000.00, reducing his offer for the Hutchinsons' farm to $80,000.00. The trustee could not accept the $80,000.00 offer and the property was ultimately released from the estate for foreclosure by the holder of the first mortgage. Yadkin Valley Bank, the holder of the second mortgage, purchased the property at the foreclosure sale. Although the bank was able to later sell the property for more than it paid for the property at the foreclosure sale, there remained a balance on the Hutchinsons' account.

Unhappy about the unpaid balance, Yadkin Valley Bank, joined by the Hutchinsons, instituted legal action first against the creditors who removed the dairy equipment from the Hutchinsons' farm, and later against the trustee. After several years of litigation and appeals on procedural issues, the matter came before the bankruptcy court on the trustee's motion for summary judgment. The bankruptcy court granted summary judgment in favor of the trustee and the district court affirmed, stating that a trustee is protected by absolute immunity. The summary judgment was appealed to the Fourth Circuit Court of Appeals which found that a trustee has immunity only when acting under direct orders of the court and that, absent such an order, a factual issue may exist regarding whether a trustee has acted within his authority. Finding genuine issues of material fact, the court remanded the matter to the bankruptcy court for further hearing. 819 F.2d 74. After several more years of litigation and appeals on procedural issues, the matter is finally before this court for decision on the merits.

II. Discussion

In this adversary proceeding, the plaintiffs assert that, with respect to the sale of the Hutchinsons' dairy farm, the trustee breached the duty imposed upon her by § 704(1) of the Bankruptcy Code. The plaintiffs contend that § 704(1) required the trustee to "reduce the assets of the estate to money as expeditiously as was compatible with the best interests of the parties" and that the trustee was negligent in the performance of that duty. The plaintiffs identify numerous acts by the trustee that they argue constitute negligence by the trustee, all of which concern the trustee's efforts to preserve and sell the dairy farm. It appears to the court that the plaintiffs interpret § 704(1) as imposing upon the trustee a duty to sell the Hutchinsons' dairy farm "expeditiously" (i.e. "quickly") and in a manner that is "in the best interests of the parties" (i.e. the plaintiffs). The court does not agree with the plaintiffs' interpretation of 11 U.S.C. § 704(1).

A. Scope of a Trustee's Duties Under 11 U.S.C. § 704(1)

Inquiries into the meaning of a statute should begin with the statute itself. See, e.g., United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). In the present matter, the relevant section of the Bankruptcy Code states that a trustee shall:

(1) collect and reduce to money all property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest;

11 U.S.C. § 704(1). This court reads § 704(1) as identifying two separate, although closely related, duties: (1) the duty to "collect and reduce to money the property of the estate" and (2) the duty to "close such estate." This court also reads § 704(1) as requiring a trustee to act "as expeditiously as is compatible with the best interests of parties in interest" only with respect to closing the bankruptcy estate. The court's interpretation of § 704(1) is based upon the plain language of the statute and upon general principles and practices of bankruptcy law.

The "plain meaning" of a statute is determined by an examination of, among other things, the grammatical structure of the statute. See United States v. Ron Pair Enterprises, Inc., 489 U.S. at 239, 109 S.Ct. at 1029. An examination of the grammatical structure of § 704(1) of the Bankruptcy Code reveals that its drafters inserted a comma before the phrase "and close such estate as expeditiously as is compatible with the best interest of the parties in interest." This particular comma, which serves no mandatory grammatical purpose, apparently was inserted by the drafters to emphasize the separation of the duty to "close the estate" from the duty to "collect and reduce to money the property of the estate." The comma also has the effect of isolating the adverb phrase "as expeditiously as is compatible with the best interests of the parties in interest" so that it appears to modify only the verb "close".

The above interpretation of § 704(1) is consistent with the principles and practices of bankruptcy law. In practice, the act of...