Rupp v. Auld (In re Auld), BAP No. UT–15–061

• Decision Date: 03 January 2017
• Docket Number: BAP No. UT–15–061,Bankr. No. 15–25411
• Citation: 561 B.R. 512
• Parties: In re Kenneth Wayne Auld, Debtor. Stephen W. Rupp, Chapter 7 Trustee, Appellant, v. Kenneth Wayne Auld, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

561 B.R. 512

In re Kenneth Wayne Auld, Debtor.

Stephen W. Rupp, Chapter 7 Trustee, Appellant,

v.Kenneth Wayne Auld, Appellee.

BAP No. UT–15–061

Bankr. No. 15–25411

United States Bankruptcy Appellate Panel of the Tenth Circuit.

FILED January 3, 2017

Mark Clifford Rose of McKay, Burton & Thurman, P.C., Salt Lake City, Utah, for the Appellant.

Before NUGENT, SOMERS, and HALL, Bankruptcy Judges.

OPINION

NUGENT, Bankruptcy Judge.

Collecting property of the estate is a Chapter 7 trustee's first duty.¹ The debtor must cooperate with the trustee in that pursuit.² Anyone who has any of the debtor's property must deliver it to the trustee or account for it.³ Anyone, including the debtor, who has recorded information about estate property or debtor's financial affairs can be ordered to turn it over.⁴ The bankruptcy court may also compel debtor to turn unrecorded information over to the trustee. The trustee may seek the bankruptcy court's help in enforcing the performance of these duties of cooperation and production. These duties and Bankruptcy Code provisions are critical to the administration of a bankruptcy estate.⁵

The Appellant, Steven Rupp, Chapter 7 Trustee of debtor Kenneth Auld's bankruptcy estate (the "Trustee"), sought the bankruptcy court's assistance in requiring Auld to turn over cash from a contract receivable, vehicle titles, loan applications, and documents. He also requested an "explanation" of certain property dispositions arising out of Auld's divorce and information about his life insurance. Despite Auld's failure to oppose these requests, the bankruptcy court denied them and the Trustee appealed. We reverse.

Among the trustee's statutory duties is the duty to oppose the debtor's discharge when it is "advisable."⁶ To do that, the trustee must file an adversary proceeding within sixty days after the first date set for the first meeting of the creditors under § 341.⁷ The Rules allow the bankruptcy court to extend that deadline for cause.⁸ The Trustee requested a ninety-day extension in this case because Auld had not responded to his previous informal requests for information. Though Auld did not oppose the extension, the bankruptcy court denied it for lack of cause. We conclude this portion of the Trustee's appeal is moot. The requested extension expired because the Trustee did not seek a stay pending this appeal.

I. APPELLATE JURISDICTION AND STANDARDS OF REVIEW

We have jurisdiction to hear appeals of final orders.⁹ A final order is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment."¹⁰ An order denying turnover of property and recorded information is a final, appealable order.¹¹ An order denying an extension of time to file a complaint objecting to a debtor's discharge under § 727 is a final, appealable order.¹² Trustee timely appealed the bankruptcy court's final order denying turnover and an extension of time.¹³ Because neither Trustee nor Auld elected to have the district court hear this appeal, we have jurisdiction over this appeal.¹⁴

We review questions of law, including the proper application of the Bankruptcy Code's turnover provision, de novo .¹⁵ We review the bankruptcy court's determination of whether cause exists to extend the time to object to a debtor's discharge for abuse of discretion.¹⁶ This requires that we have a definite and firm conviction that the bankruptcy court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances or that the court's determination is arbitrary, capricious, or whimsical or results in a manifestly unreasonable judgment.¹⁷

II. FACTS

Debtor Kenneth Auld filed his Chapter 7 case on June 10, 2015. The Trustee was appointed and conducted a § 341 first meeting of the creditors on July 28, 2015. At the § 341 meeting, Auld provided the Trustee with some unspecified written information. In keeping with local bankruptcy practice, at the first meeting the Trustee presented a written "directive" to the debtor.¹⁸ That directive, dated July 28, 2015, "instructs" Auld to provide the Trustee with the following:

• Copies of his 2015 federal and state tax returns when they are filed and not later than March 1, 2016 as well as 162/365 of any 2015 refund when received;

• "Financial account statements" from May 1, 2015 to the "present;"

• Copies of a "divorce decree and settlement agreement;"

• "2 FICA motorcycle loan documents and title;" and

• "Loan application for mortgage."¹⁹

The following day, July 29, the Trustee sent a follow-up e-mail to Auld's counsel requesting several more items.²⁰ These were:

• Turnover or a proposal for repayment of contract receivable proceeds in the amount of $3,224 Auld received on June 11, 2015;

• Turnover of the estate's portion of the Auld's foster children receivable for June 2015 (10/30);

• Identification of the source of a "$1,000 deposit on June 24 and the $750 deposit on 6/15/15;" and

• An explanation of a "recurring $852.50 payment (to American First?),"—why that payment had not been disclosed in Auld's Statement of Financial Affairs ("SOFA"), and why Auld had made three such payments in June.²¹

Auld's counsel responded to the e-mail within minutes stating he would contact his client "right away."²²

Auld produced some of the requested information on August 26. After a second email, the Trustee filed his Motion to Extend Deadline for Filing Complaints Concerning the Debtor's Discharge and Motion for Turnover Order Pursuant to

§ 521 and § 542 of the Bankruptcy Code

on September 28, 2015 (the "Motion"), seeking turnover, production, and a ninety-day extension of the Rule 4004(a) time to file a general objection to discharge under § 727(a).²³ The time sequence here is muddy. Trustee's Motion states, "after review of the production and information received on August 26, 2015, the trustee again made requests of the debtor ... by an email dated July 29, 2015 ."²⁴ The latter date cannot be right and regrettably, this second e-mail is not in the record. In the Motion, the Trustee specifically requested the debtor to "surrender, produce, turnover and provide" the following within fifteen days of the bankruptcy court's order:

(1) A contract receivable in the amount of $3,224 for the month of May, allegedly received the day after the bankruptcy petition was filed;

(2) A fractional amount (10/30ths) of the contract receivable received by Auld in the month of July for services rendered in the month of June;

(3) Copies of Auld's mortgage loan or credit applications given to obtain the present mortgage against Auld's property at Pinenut Circle;

(4) Copies, front and back, of two America First Credit Union loan documents and a copy of the title to a 2009 Harley–Davidson motorcycle;

(5) Copies of Auld's prepared and filed 2015 tax returns upon filing and the estate's portion of any and all 2015 refunds immediately upon receipt;

(6) Copies, front and back, of titles to a 2004 and/or 2002 GMC Yukon;

(7) An explanation concerning the disposition of property awarded to Auld in his most recent divorce decree; and

(8) Information concerning any life insurance policy owned by Auld and required by paragraph twenty-four of Auld's divorce decree.²⁵

The Trustee also requested an extension of time to December 28, 2015 in which to file a § 727(a) complaint in order to obtain "further time and opportunity to do all that the Trustee considers necessary to enable the Trustee to perform the Trustee's duties under § 521," and to give Auld additional time to comply with his statutory duties.²⁶ The bankruptcy court's docket sheet reflects that a proposed order was submitted with the Motion.

Auld did not object to the Trustee's Motion and there was no hearing. Nevertheless, the bankruptcy court denied the requests for turnover and extension of time in a Memorandum Decision (the "Order") entered on December 21, 2015.²⁷ In the Order, the bankruptcy court noted that the Motion lacked sufficient detail as to some of the requested relief and, generally, that information and explanations are not properly the subject of a turnover proceeding. The bankruptcy court said that information and explanations should instead be obtained informally or through the Rule 2004 discovery process. The bankruptcy court also noted that the Trustee had failed to demonstrate that the items requested were property of the estate or related to it and that Auld was currently in "possession, custody, or control" of them. The bankruptcy court deemed the Motion to be premature in that the Trustee sought to invoke the turnover power before conducting formal discovery and because it was unclear whether the Trustee had previously requested all of the information and property sought in the Motion, a notion likely fostered by the sequence of dates pleaded in the Motion. Finally, the bankruptcy court denied the Trustee's request to extend the Rule 4004(a) deadline because "the Trustee has not stated any cause to extend" it.²⁸ Trustee timely appealed.

III. ANALYSIS

Turnover of Estate Property under § 542(a)

We review the bankruptcy court's legal conclusion that a debtor must be in current possession of the property to be turned over as a predicate to a turnover motion de novo . Section 542(a) states that an entity who has possession, custody, or control "during the case " of any property that the trustee may use, sell, or lease under § 363 or that the debtor may exempt under § 522, "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."²⁹ This provision effectively implements the debtor's duties under § 521(a)(3), to "cooperate with the trustee" so that he can perform his duties, and § 521(a)(4), to "surrender to the trustee all property of the estate and any recorded information, including books, documents, records, and papers" that relate to the property of the estate. The mandatory language of these provisions suggests that they...