Neville v. Harris
| Decision Date | 06 January 1996 |
| Docket Number | Civil A. No. 95-3317 (AJL). |
| Citation | 192 BR 825 |
| Parties | Robert NEVILLE, Beverly Neville, Appellants, v. Elaine HARRIS, Trustee, Appellee. |
| Court | U.S. District Court — District of New Jersey |
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Alan R. Kaplan, Brian R. Quentzel, Englewood, New Jersey, for Appellants.
Richard D. Trenk, Ira M. Levee, Mary E. Seymour, Ravin, Sarasohn, Cook, Baumgarten, Fisch & Baime, Roseland, New Jersey, for Appellee.
This is an appeal by debtors Robert Neville and Beverly Neville (the "Nevilles") from an order (the "Order") of the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The Order directed the Nevilles' Chapter 7 Bankruptcy case (the "Case") be reopened, pursuant to Section 350(b),1 upon a motion by trustee Elaine Harris (the "Trustee").2 Appellate jurisdiction in this court exists under 28 U.S.C. § 158(a). For the reasons set forth below, the Order is affirmed.
The Nevilles opened the Case by filing a petition (the "Petition") under Chapter 7 of the Bankruptcy Code, on 21 May 1993. See Discharge Order. At that time, there were unsecured nonpriority claims against the Nevilles in the amount of $129,000.00. Tr. at 14. The Petition included a form schedule requiring a description and estimated value for all of the Nevilles' "contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims." The Nevilles listed in the Petition a "claim against prior attorney, now in litigation," of "unknown value" (the "Lawsuit").3See Kaplan Cert., ¶ 3 & Exhibit (Petition, Schedule B). The total reported estimate of all assets listed on the page of the Petition where the Nevilles reported the Lawsuit was $7,600.00. Id. The Lawsuit4 is a legal malpractice action filed by the Nevilles against an attorney, Juan Espinosa ("Espinosa") who represented them in a matter prior to their filing of the Petition. Id., ¶ 4.
On 10 June 1993, the Trustee was appointed. The Trustee held a meeting with creditors, pursuant to Section 341(a) (the "341 Meeting"), on 15 July 1993. The Nevilles were present at that meeting and the Trustee questioned them about the Lawsuit. Supplemental Cert., ¶ 2; Kaplan Cert., ¶ 4. At the 341 Meeting, the Nevilles informed the Trustee that they would provide her with additional information about the Lawsuit. Kaplan Cert., ¶ 4. The Nevilles contend that, "in the minutes5 of the 341 Hearing, the Trustee acknowledged that she anticipated the abandonment of the Lawsuit, that the assets were not in excess of liens and exemptions, and that she did not request the amendment of schedules." Moving Brief at 3.
In response to the Trustee's request for additional information about the Lawsuit, counsel for the Nevilles sent the Trustee a letter, dated 22 July 1993 (the "22 July Letter"). Kaplan Cert., ¶ 5, & Exhibit (22 July Letter). The 22 July Letter discusses several matters, including the Lawsuit. Approximately two and one-half pages of the 22 July Letter are devoted to the Lawsuit. Id.
The 22 July Letter indicates that Espinosa represented the Nevilles in a partial transfer of a family business and in related litigation. The 22 July Letter states the Nevilles allege Espinosa, who negotiated a settlement of litigation between the Nevilles and other parties, stipulated on the record, against the express wishes of the Nevilles, that the Nevilles would personally guaranty certain payments by them to their adversaries. Kaplan Cert., Exhibit (22 July Letter). The 22 July Letter indicates the Nevilles filed the Lawsuit in August 1992, and also indicates the Nevilles attribute their need to file for protection under Chapter 7 to the negligence of Espinosa. Id. In the 22 July Letter, counsel stated that the Nevilles estimate the monetary value of their claims against Espinosa at $275,000.00. Id. Counsel declined to offer his own professional opinion of the merits of the Lawsuit, stating "whether or not the Nevilles will be successful, and if successful, what the award will be, I do not know." Id. The 22 July Letter indicates the Nevilles were responsible for advancing all costs related to the Lawsuit and that they agreed to a standard one-third contingency fee agreement with counsel representing them in the Lawsuit. Id. Finally, the 22 July Letter requests a decision indicating whether the Trustee will be administering the Lawsuit. Id.
The Nevilles state that the Trustee advised them, by telephone, on an unspecified date, that the Trustee did not intend to pursue the Lawsuit on behalf of the Nevilles' estate (the "Estate"). Kaplan Cert., ¶ 6. The Nevilles also state that they relied on the "Trustee's oral representations" and thereby gave their money and time to advance the Lawsuit. Id., ¶ 9. Specifically, the Nevilles have established that they have incurred deposition and expert witness costs of $4,121.00 and expect to spend an additional $2,500.00 for expert witnesses in the event the Lawsuit proceeds to trial. Quentzel Cert., ¶ 3.
The Bankruptcy Court granted the Nevilles a discharge on 9 September 1993. See Discharge Order. On 5 October 1993, the Trustee filed a report with the Bankruptcy Court, certifying that the Estate was fully administered and that "there is no property available for distribution from the Estate over and above that exempted by law." Trustee's Report at 2. The Case was closed and the Trustee was discharged on 29 October 1993. Moving Brief at 4; Opposition Brief at 3. The Nevilles have established that Espinosa submitted a letter to the Bankruptcy Court, dated 20 October 1994 (the "20 October Letter"), requesting the Bankruptcy Court reopen the Case. Kaplan Cert., ¶ 9 & Exhibit (20 October Letter). The Nevilles allege Espinosa requested the Bankruptcy Court reopen the Case to "attempt to remove the Nevilles' motivation from actively proving that he committed legal malpractice." Id., ¶ 10.
Following the close of the Case, some creditors of the Nevilles contacted the Trustee concerning the award potential of the Lawsuit. Supplemental Cert., ¶ 3. Upon the motion of the Trustee, the Bankruptcy Court held the Hearing on 22 May 1995 to decide whether to reopen the Case. On that date, the Bankruptcy Court ruled from the bench, holding that there was cause to reopen the Case, pursuant to Section 350(b). Tr. at 13-16. The Bankruptcy Court also directed the United States Trustee to appoint a trustee to decide whether to pursue the Lawsuit for the Estate, and denied a sanctions motion by the Nevilles.6 Id. at 16. The Bankruptcy Court did not sign and file the Order until 22 June 1995, when the Trustee submitted a proposed order to the Bankruptcy Court. In the interim, the Nevilles filed a notice of appeal, on 7 June 1995.
The proper standard of review to be applied by a district court when reviewing a ruling of a bankruptcy court is determined by the nature of the issues presented on appeal. The factual determinations of the bankruptcy court must be given conclusive effect unless they are "clearly erroneous." Fellheimer, Eichen & Braverman, P.C. v. Charter Technologies, Inc., 57 F.3d 1215, 1223 (3d Cir.1995); In re Brown, 951 F.2d 564, 567 (3d Cir.1991). Legal conclusions of a bankruptcy court, however, are subject to plenary review by the district court. In re DeSeno, 17 F.3d 642, 643 (3d Cir.1994); FRG, Inc. v. Manley, 919 F.2d 850, 854 n. 8 (3d Cir.1990). Where a case presents mixed questions of law and fact, it is appropriate to apply the relevant standard to each component of the issue. In re Sharon Steel Corp., 871 F.2d 1217, 1222-23 (3d Cir.1989).
Section 350 provides in pertinent part:
A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.
Section 350(b). A decision by the Bankruptcy Court to reopen a case under Section 350(b) is reviewed for abuse of discretion. In re Thompson, 16 F.3d 576, 581-82 (4th Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 2709, 129 L.Ed.2d 836 (1994); In re Cisneros, 994 F.2d 1462, 1464-65 (9th Cir.1993); In re Fossey, 119 B.R. 268, 271 (D.Utah 1990) (citing In re Atkinson, 62 B.R. 678, 679 (Bankr. D.Nev.1986)). The Nevilles argue that the Bankruptcy Court abused its discretion by reopening the Case because all assets of the Estate were irrevocably abandoned to them under Section 554(c). Moving Brief at 6; Reply Brief at 3.
Analysis must begin with Section 541, which defines property of an estate in bankruptcy. Section 541(a)(1) broadly defines property of an estate as "all legal or equitable interests of the debtor in property as of the commencement of the case." Id. There are exceptions to this general rule, but none applies here. Section 554(c) provides:
Unless the court orders otherwise, any property scheduled under Section 521(1)7 . . . not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of Section 350.
Section 554(c). Section 554(d), however, states:
Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.
The Lawsuit is based upon events occurring prior to the filing of the Petition. Accordingly, the Lawsuit is a cause of action existing at the time the Nevilles filed the Petition and became property of the Estate when the Petition was filed. United States v. Whiting Pools, Inc., 462 U.S. 198, 205 n. 9, 103 S.Ct. 2309, 2314 n. 9, 76 L.Ed.2d 515 (1983); In re Brateman Bros., Inc., 135 B.R. 853, 855 (Bankr.N.D.Ind.1991); In re Atkinson, 62 B.R. at 679 (citing Miller v. Shallowford Comm. Hosp., Inc., 767 F.2d 1556, 1559 (11th Cir.1985)). The instant matter turns upon whether the Trustee, by acts or omissions, abandoned the Lawsuit pursuant to Section 554(c).
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