In re Wilson

• Decision Date: 06 January 1989
• Docket Number: Bankruptcy No. 84-01415-A.
• Citation: 94 BR 886
• Parties: In re Edwin Paul WILSON, Debtor, General Richard V. Secord, Intervenor.
• Court: U.S. District Court — Virgin Islands, Bankruptcy Division

94 B.R. 886 (1989)

In re Edwin Paul WILSON, Debtor General Richard V. Secord, Intervenor.

Bankruptcy No. 84-01415-A.

United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

January 6, 1989.

Stephen E. Leach, Counsel for John W. Guinee, Trustee, Zuckerman, Spaeder, Goldstein, Taylor & Kolker, Washington, D.C., and Daniel S. Alcorn, Bernard Fensterwald, Jr., Bernard Fensterwald, III, Fensterwald, Alcorn & Vangellow, Arlington, Va., and Paul Blumenthal, Blumenthal, Carpenter & Berkowitz, Washington, D.C., for debtor.

Thomas C. Green, Sharp, Green & Lankford, Washington, D.C., for Richard V. Secord, intervenor.

Jack McKay, Shaw, Pittman, Potts & Trowbridge, McLean, Va., for Thomas C. Shakley.

Richard Lepley, U.S. Dept. of Justice, Civil Div., Washington, D.C., for the U.S.

MEMORANDUM OPINION

MARTIN V.B. BOSTETTER, Jr., Chief Judge.

We are here on the application of the Chapter 11 debtor, Edwin P. Wilson, to have the trustee abandon a proposed cause of action against seven individuals, pursuant to Bankruptcy Code Section 554. One of the defendants named in the proposed complaint, General Richard V. Secord, has filed a motion to intervene and opposes the requested abandonment by claiming that the suit is barred by all relevant statutes of limitation. Another of the proposed defendants, Thomas C. Shackley, opposes the debtor's application on the basis that the allegations in the proposed complaint are groundless, thereby prompting needless expense and litigation. Lastly, the United States, through the Attorney General, has filed a Suggestion of Immunity on behalf of two other defendants, arguing that the abandonment of the proposed complaint would conflict with the foreign policy interests of the United States, in view of the individuals' status as officials of a foreign country.

In response to the debtor's application, the trustee has indicated that he has no objection to the entry of an order providing for the estate's abandonment of the proposed claims so long as the order provides that:

(a) The estate will receive a reasonable portion of any profits or other funds collected by the debtor as a result of his pursuit of the claims to be abandoned;

(b) The estate need not provide any fund, resources or assistance to the debtor in the pursuit of the claims other than the sharing of such information as the estate may have concerning the proposed defendants; and that

(c) The debtor must not name the estate as a party to any action or proceeding brought to pursue the claims.

At the hearing held on the debtor's application, counsel for the trustee added that the procedure agreed to was that the estate would receive 35 percent of the net recovery from the debtor's litigation, in the event that there was a recovery.

We address first the Secord motion to intervene. Bankruptcy Rule of Procedure 2018(a) provides that in a case under the Code, a court may grant permissive intervention for "cause shown". Bankr.R.P. 2018(a). An entity seeking intervention may establish just cause by demonstrating an economic or similar interest in the matter pending. See In re Public Service Co. of New Hampshire, 88 B.R. 546, 551 (Bankr.D.N.H.1988) (citing 8 Collier on Bankruptcy, ¶ 2018.033 at 2018-7 (15th ed. 1988)).

In the case at bar, Secord grounds his motion to intervene on the basis that he is a named defendant in the proposed civil complaint. As a party to that cause of action, we note that Secord certainly has an interest in this Court's consideration of the debtor's application for abandonment. We note further that in view of the differing arguments advanced on behalf of the proposed defendants, this interest is not represented adequately by any other party responding to the application. Finally, we note that the debtor opposed the motion to intervene only on the basis that the movant "had not raised issues that would prevent this Court from entering the order of abandonment", and failed to address the adequacy of the movant's interest. Accordingly, we find that the movant has established sufficient cause, which remained unchallenged by the debtor's response, and, therefore, grant the motion to intervene.

Next, we turn to the application for abandonment. Prior to a consideration of the merits, we review briefly the guidelines applicable to the abandonment of estate property. Under § 541(a) of the Bankruptcy Code ("the Code"), the commencement of a bankruptcy case creates an estate comprised of "all legal or equitable interests" of the debtor. 11 U.S.C. § 541(a)(1). The scope of section 541 is broad and includes intangible property such as a cause of action. Historical and Revision Notes to § 541; Notes of the Committee on the Judiciary, Senate Report No. 95-989; see United States v. Whiting Pools, Inc., 462 U.S. 198, 204-05, 103 S.Ct. 2309, 2313, 76 L.Ed. 2d 515 (1983). If a trustee is appointed to oversee the debtor's estate, the trustee succeeds to the interests which the debtor had at the time of his filing. 11 U.S.C. §§ 541, 542. It is well settled, however, that a trustee is not obligated to accept onerous or unprofitable property surrendered as part of the estate, Stanolind Oil & Gas Co. v. Logan, 92 F.2d 28, 31 (5th Cir.), cert. denied, 302 U.S. 763, 58 S.Ct. 409, 82 L.Ed. 592 (1938)¹, and may abandon property that is "burdensome" or "of inconsequential value and benefit" under § 554 of the Code.² See In re Smith-Douglass, Inc., 856 F.2d 12, 15 (4th Cir.1988).

In fulfillment of his role as a representative of the estate and its creditors, the trustee determines whether to maintain or abandon estate property. In re Rea Express, Inc., 9 B.R. 896, 897 (Bankr.S.D. N.Y.1981); see In re K.C. Machine & Tool Co., 816 F.2d 238, 246 n. 9 (6th Cir.1987); McNellis v. Raymond, 304 F.Supp. 1172, 1174 (N.D.N.Y.1969); In re Preston, 82 B.R. 28, 30 (Bankr.W.D.Va.1987). If a timely objection to the trustee's application is filed, or, as in this case, a party in interest has requested the trustee to abandon certain property, court approval is required. 11 U.S.C. § 554(a), (b); Bankr.R.P. 6007; see Preston, 82 B.R. at 30. Upon abandonment, the property reverts to the party with the possessory interest. Historical and Revision Notes to § 554, Notes of the Committee on the Judiciary, Senate Report No. 95-989; see Ohio v. Kovacs, 469 U.S. 274, 284 n. 12, 105 S.Ct. 705, 710 n. 12, 83 L.Ed.2d 649 (1985).

In keeping with the goal of the bankruptcy reform movement to divorce courts from ministerial duties, a trustee's disposition of estate property is reviewable only for the purpose of determining whether the decision was made in an arbitrary or capricious manner. In re Curlew Value Assoc., 14 B.R. 506, 511, 513 (Bankr.D.Utah 1981); see H.R. No. 99-764, 99 Cong., 2d Sess. 15, reprinted in 1986 U.S.Code Cong. & Admin.News 5227, 5229-30; see also In re American Energy, 49 B.R. 420, 421-22 (Bankr.D.N.D.1985) (bankruptcy court will not usurp the administrative obligations of the trustee and will only act when bona fide dispute is before the court). Accordingly, when called upon to review contested applications for abandonment, a court must focus its examination upon the reasons underlying the trustee's determination and affirm a decision which reflects a business judgment "made in good faith, upon a reasonable basis and with the scope of his authority under the Code." Curlew, 14 B.R. at 513-14; see In re Hartley, 50 B.R. 852, 863-64 (Bankr.N.D.Ohio 1985) (citing Curlew); In re Afco Enter., Inc., 35 B.R. 512, 517 (Bankr.D.Utah 1983) (same); accord In re Janmar, 4 B.R. 4, 10 (Bankr.N. D.Ga.1979) (generally unless trustee agrees to abandonment of a particular property of estate, no order of abandonment shall be issued).

With respect to the trustee's authority to dispose of causes of action specifically, the United States Supreme Court has noted in Meyer v. Fleming that a trustee is

in position to take control of the litigation. He may, as indicated in Johnson v. Collier, 222 U.S. 538, 540, 32 S.Ct. 104, 105, 56 L.Ed. 306, start a new suit and cause the old one to be abated, or intervene in the old one and obtain such benefits as it affords. . . . `If, because of the disproportionate expense, or uncertainty as to the result, the trustee neither sues nor intervenes, there is no reason why the bankrupt himself should not continue the litigation. He has an interest in making the dividend for creditors as large as possible, and in some states the more direct interest of creating a fund which may be set apart to him as an exemption.\'"

327 U.S. 161, 165-66, 66 S.Ct. 382, 385, 90 L.Ed. 595 (1946) (footnotes omitted) (quoting Johnson v. Collier, 222 U.S. 538, 540, 32 S.Ct. 104, 105, 56 L.Ed. 306 (1912)).

In elaborating upon the latitude a trustee enjoys, the Meyer Court further observed that

`the trustee in bankruptcy is not obliged to maintain or continue every cause of action which the bankrupt may have. He is not bound to accept burdensome property nor unprofitable contracts, nor is he obliged to intervene in any action pending by or against the bankrupt. . . . The relationship, therefore, between the bankrupt and his trustee is for one and the same purpose — to get out of the bankrupt\'s property and claims enough money to pay his debts and to relieve the bankrupt, through his discharge, from further responsibility.\'

327 U.S. at 166 n. 9, 66 S.Ct. at 385 n. 9 (quoting Van Der Stegen v. Neuss, Hesslein & Co, 270 N.Y. 55, 59-60, 200 N.E. 577, 578-79 (1936)).³ Thus, it appears that the only concern of the trustee in determining whether to abandon a claim is whether such action would be in the best interest of the estate. Rea, 9 B.R. at 897; see Hanover Trust Ins. Co. v. Tyco Industries, Inc., 500 F.2d 654, 657 (3d Cir.1974) ("In carrying out his statutory duty to maximize the bankrupt's estate, the Trustee may abandon his claim to any asset, including a cause of action, he deems less valuable than the cost of asserting that claim...