In re Rochester

• Decision Date: 06 April 2004
• Docket Number: No. 01-63424-WHD.,01-63424-WHD.
• Parties: In the Matter of Duane A. ROCHESTER, Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

308 B.R. 596

In the Matter of Duane A. ROCHESTER, Debtor.

No. 01-63424-WHD.

United States District Court, N.D. Georgia, Atlanta Division.

April 6, 2004.

COPYRIGHT MATERIAL OMITTED

Ralph Goldberg, Esq., Decatur, GA, Ben C. Brodhead, Esq., Atlanta, GA, for Debtor.

Alfred B. Adams, III, Esq., John K. Rezac, Esq., Tiffani Z. Moody, Esq., Holland & Knight LLP, Atlanta, GA, for BFS Diversified Products, LLC, Firestone Building Products Company, Commercial Roofing Specialties, Inc., and CRS, Inc.

ORDER

W. HOMER DRAKE, JR., Bankruptcy Judge.

Before the Court is the Debtor's "Motion to Reopen Chapter 7 Case," in which Duane Rochester (hereinafter the "Debtor") seeks to reopen his bankruptcy case to amend his schedules. On November 25, 2003, BFS Diversified Products, LLC, Firestone Building Products Company, Commercial Roofing Specialists, Inc., and CRS, Inc. filed an objection to the Debtor's motion. After a hearing on December 1, 2003, the Court took the matter under advisement and requested briefs from the parties. Several other parties have also filed briefs, including Carlisle Syntec, Inc., JPS Elastomerics Corp., and Sarnafil, Inc. (collectively referred to as the "Objecting Parties"). This matter constitutes a core proceeding, see 28 U.S.C. § 157(b)(2)(A), and will be disposed of in accordance with the following reasoning.

FINDINGS OF FACT

Prior to filing his bankruptcy case, the Debtor suffered an injury while working with roofing materials. The Debtor contends that his current respiratory problems result from exposure to toxic fumes and gases while on the job. He reported this injury to his supervisor sometime between October 6 and October 9, 2000, and filed a notice of claim with the Georgia State Board of Workers' Compensation on October 6, 2000. On December 1, 2000, Dr. Laurence Rivkin, the Debtor's treating physician, wrote an opinion letter to the Debtor's attorney in which he diagnosed the Debtor with occupational lung disease from the inhalation of toxic gases. Throughout the administrative process, the Debtor was represented by a workers' compensation attorney named Larry Hanna.

On March 15, 2001, with the assistance of bankruptcy counsel, J. Daran Burns, the Debtor commenced the present bankruptcy proceeding by filing a voluntary petition under Chapter 7 of the Bankruptcy Code. Paul W. Bonapfel (hereinafter the "Trustee") was appointed as the Chapter 7 trustee and held the first meeting of creditors on April 25, 2001. Following the meeting of creditors, the Trustee submitted a report of no distribution. The Debtor received his discharge on June 28, 2001, and, because the estate contained no assets to be distributed, the Clerk closed the case.

On August 27, 2002, the Debtor filed a products liability claim in the State Court of Fulton County (hereinafter the "State Court Action"). In the State Court Action, the Debtor, represented by attorney Ben C. Brodhead, asserted that the roofing materials manufactured and/or distributed by the Objecting Parties caused his injury. The Debtor did not list a products liability claim against the Objecting Parties as an asset on Schedule B (Personal Property) and checked "None" on the line that requests the Debtor to disclose "other contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims." However, the Debtor did list his monthly workers' compensation benefits of $1625 and his "workers' compensation case," to which he assigned an unknown value. Additionally, in response to the question on the Statement of Financial Affairs that requires the Debtor to list all suits pending within one year before the bankruptcy filing, the Debtor listed a workers' compensation claim against "WC Insurance Company." There is nothing in the record to suggest that the Debtor disclosed to the Trustee any intent to eventually pursue a products liability claim. At the time the Debtor's case was closed, $124,638 worth of unsecured debt remained unpaid. No evidence was submitted regarding the amount of damages that may be recovered in the State Court Action, but the Debtor contends that the recovery would be more than sufficient to pay all claims that would be filed against his bankruptcy estate.

On September 22, 2003, the Objecting Parties filed a Motion for Summary Judgment in the State Court Action, arguing that the Debtor lacked standing to prosecute the products liability claim and that the doctrine of judicial estoppel should bar the Debtor from any recovery on his claim. On October 6, 2003, apparently in response to the Motion for Summary Judgment, the Debtor filed the instant motion, seeking to reopen his bankruptcy case for the purpose of amending his schedules to add the claim as an asset and to claim an exemption in the asset. The Objecting Parties oppose the Motion to Reopen.

CONCLUSIONS OF LAW

A. Section 350(b)

Section 350(b) of the Bankruptcy Code provides that the Court may reopen a closed case in order to administer assets, accord relief to the debtor, or for other cause. 11 U.S.C. § 350(b). By its reference to "cause," § 350(b) casts a broad net, and a decision in this respect thus necessarily falls within the "sound discretion of a bankruptcy court." See In re Sheerin, 21 B.R. 438, 439-40 (1st Cir. BAP 1982); see also In re Daniel, 205 B.R. 346, 348 (Bankr.N.D.Ga.1997). The Court must consider the facts presented in each case and use its discretion to determine whether cause exists to reopen a case. See In re Koch, 229 B.R. 78, 88 (Bankr.E.D.N.Y.1999) ("The bankruptcy court should exercise its discretion, based upon the peculiar facts present and determine if cause exists and how ultimately to dispose of the case."); In re Winebrenner, 170 B.R. 878, 881 (Bankr.E.D.Va.1994).

More pertinent is the notion that a bankruptcy court may in fact have a duty to reopen a case in which new assets have been discovered in order to ensure that the assets are administered for the benefit of the debtor's creditors. In re Lopez, 283 B.R. 22, 27 (9th Cir. BAP 2002) ("[I]t is an abuse of discretion to deny a motion to reopen where `assets of such probability, administrability, and substance' appear to exist `as to make it unreasonable under all circumstances for the court not to deal with them.'"); In re Mullendore, 741 F.2d 306, 308 (10th Cir.1984).

Many courts have held that a bankruptcy court does not abuse its discretion when it reopens a closed case to administer newly-discovered assets. In fact, some courts have stated that "it is the duty of the court to reopen an estate whenever prima facie proof is made that it has not been fully administered."

Stackhouse v. Plumlee (In re Plumlee), 236 B.R. 606, 610 (E.D.Va.1999) (citations omitted). However, a bankruptcy court need not reopen a case when "the chance of any substantial recovery for creditors appears `too remote to make the effort worth the risk.'" Lopez, 283 B.R. at 27.

In this case, prima facie evidence has been submitted by the Debtor that an asset of the Debtor's bankruptcy estate has not been fully administered for the benefit of the creditors. The cause of action arose prior to the Debtor's bankruptcy filing. Therefore, the claim became property of the Debtor's bankruptcy estate. See 11 U.S.C. § 541(a) (defining property of a debtor's estate to include "all legal or equitable interests of the debtor and property as of the commencement of the case"); see also Barger v. City of Cartersville, 348 F.3d 1289, 1291 (11th Cir.2003) ("[P]roperty of the bankruptcy estate includes all potential causes of action that exist at the time petitioner files for bankruptcy."). The Trustee did not abandon the claim, pursuant to § 554(a) or (b), and, because the claim was not scheduled, the claim was not deemed to be abandoned under § 554(c). 11 U.S.C. § 554. A claim that is neither administered nor abandoned by the trustee remains property of the bankruptcy estate. 11 U.S.C. § 554(d). Consequently, this unscheduled, unadministered, and unabandoned claim remains property of the Debtor's bankruptcy estate that may be administered by a trustee if the case is reopened. See In re Lewis, 273 B.R. 739 (Bankr.N.D.Ga.2001) (Drake, J.); In re Arboleda, 224 B.R. 640 (Bankr.N.D.Ill.1998); In re Peebles, 224 B.R. 519 (Bankr.D.Mass.1998).

As noted above, the Debtor's case was closed without the distribution of any funds to the Debtor's creditors, who were owed in excess of $120,000. Under these circumstances, a successful administration of this asset would not be futile, as any recovery would provide the creditors with such a distribution.¹ See Lopez, 283 B.R. at 28 ("If the case is reopened .... the chapter 7 trustee can also notify creditors to file claims ... and can make distributions on those claims out of any eventual recovery.").

When considering whether to reopen a bankruptcy case in the context of an undisclosed cause of action, courts have also considered the following three interests: 1) the benefit to the debtor; 2) the prejudice or detriment to the defendant in the pending litigation; and 3) the benefit to the debtor's creditors. In re Koch, 229 B.R. at 85-86; In re Maloy, 195 B.R. 517, 518 (Bankr.M.D.Ga.1996). As the Court has stated in its earlier decisions, "the final factor, the potential benefit to the creditors, would appear to be the most important factor in this analysis." In re Tarrer, 273 B.R. 724, 733 (Bankr.N.D.Ga.2001) (Drake, J.); see also In re Lewis, 273 B.R. 739 (Bankr.N.D.Ga.2001) (Drake, J). Assuming the trustee recovers on the Debtor's claim, the creditors, who are owed approximately $124,000, would receive some payment.² Accordingly, "[a] denial in the instant case of Debtor's motion to reopen would deprive Debtor's creditors of an opportunity to share in the fruits of any recovery Debtor may obtain." In re Daniel, 205 B.R. 346, 348 (Bankr.N.D.Ga.1997); see also Lopez, 283 B.R. at 30 n. 12 (objecting parties' loss of the judicial...