Shapiro v. Henson

• Decision Date: 09 January 2014
• Docket Number: No. 11–16019.,11–16019.
• Citation: 739 F.3d 1198
• Parties: Brian David SHAPIRO, Trustee of the bankruptcy estate of Barbara Melinda Henson, Appellant, v. Barbara Melinda HENSON, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

739 F.3d 1198

Brian David SHAPIRO, Trustee of the bankruptcy estate of Barbara Melinda Henson, Appellant,

v.Barbara Melinda HENSON, Appellee.

No. 11–16019.

United States Court of Appeals,Ninth Circuit.

Submitted Oct. 8, 2013.^*

Filed Jan. 9, 2014.

Brian D. Shapiro, Law Office of Brian D. Shapiro, LLC, Las Vegas, NV, for Appellant.

Tara Twomey, National Consumer Bankruptcy Rights Center, San Jose, CA, for Amicus Curiae National Association of Consumer Bankruptcy Attorneys.

Appeal from the United States District Court for the District of Nevada, Edward C. Reed, Jr., Senior District Judge, Presiding. D.C. No. 2:10–cv–00726–ECR–GWF.

Before: N. RANDY SMITH and JACQUELINE H. NGUYEN, Circuit Judges, and GORDON J. QUIST, Senior District Judge.^**

OPINION

N.R. SMITH, Circuit Judge:

Bankruptcy Code § 542(a) grants a bankruptcy trustee the power to recover property of the debtor's estate or such property's value. With this power, the trustee may seek recovery from entities having “possession, custody, or control” of the property sought, whether the property was in the entity's possession, custody, or control at the time the motion was filed or at any other point during the pendency of the bankruptcy case. Therefore, we reverse the district court's decision affirming denial of bankruptcy trustee Brian Shapiro's motion for turnover and remand for further proceedings.

FACTS & PROCEDURAL HISTORY

On August 7, 2009, Barbara Henson filed a voluntary Chapter 7 bankruptcy petition. At the time she filed bankruptcy, Henson had a Bank of America checking account with $6,955.19 therein. Henson had written several checks drawn on this account before filing for bankruptcy, but the bank did not honor those checks until after she filed her petition.

On October 2, 2009, Brian Shapiro (the bankruptcy trustee appointed for Henson's case) sent Henson a letter demanding that Henson turn over the funds that had been in her bank account. On November 3, 2009, Henson denied being in possession of the funds and indicated that she would not comply.¹ On November 11, 2009, Shapiro responded by filing a motion for turnover under § 542(a) against Henson to recover $6,155.19 of her petition-date account balance.²

The bankruptcy court denied the motion, because Henson did not have possession or control of the funds at the time Shapiro filed the motion for turnover. Shapiro appealed to the district court. The district court affirmed, and Shapiro then timely filed the instant appeal.

While this appeal was pending, the National Association of Consumer Bankruptcy Attorneys (“NACBA”) filed a motion seeking leave to file a brief as amicus curiae in support of Henson, including with the motion its proposed amicus brief. We GRANT the NACBA's motion.

STANDARD OF REVIEW

We review the district court's decision affirming the bankruptcy court de novo. Barclay v. Mackenzie ( In re AFI Holding, Inc.), 525 F.3d 700, 702 (9th Cir.2008). We also review a bankruptcy court's interpretation of the Bankruptcy Code de novo. Tighe v. Celebrity Home Entm't, Inc. ( In re Celebrity Home Entm't, Inc.), 210 F.3d 995, 997 (9th Cir.2000).

DISCUSSION

The question presented in this case is one of first impression in this circuit: whether a trustee's turnover power is solely restricted to recovering bankruptcy estate property, or its value, from entities having “possession, custody, or control” (collectively “possession”) of such property at the time the motion for turnover is filed. The plain language of § 542(a), pre-Code practice, and the context of other Code provisions indicate that the trustee's turnover power is not restricted to property of the estate at the time the motion is filed.

A. Section 542(a)'s Text

The “starting point for interpreting a statute is the language of the statute itself.” United States v. Buckland, 289 F.3d 558, 564 (9th Cir.2002) (quoting Hallstrom v. Tillamook Cnty., 493 U.S. 20, 25, 110 S.Ct. 304, 107 L.Ed.2d 237 (1989) (internal quotation marks omitted)). Section 542(a) states in relevant part, “[A]n entity ... in possession, custody, or control, during the case, of [property of the estate, or exempt property], 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.” 11 U.S.C. § 542(a). Two key phrases evidence that § 542(a) allows a turnover motion to be brought against the entity at any time during the pendency of the bankruptcy case, even if the entity no longer possesses or has custody or control over the property, at the time the motion is filed.

1. “During the Case”

First, “during the case” means that the trustee may bring a motion for turnover against an entity who has possession of the property of the estate, or had possession of that property at some point during the bankruptcy case. Section 542(a) does not include any words that hint at a narrower time of possession, and there is certainly no reference to the time of the motion's filing. See id. Rather, the statute only specifies that an entity “in possession, custody, or control, during the case” of estate property must turn it over to the trustee. Id.

Nor do we infer from this silence, with respect to whether an entity's obligation to turn over property continues after possession ceases, a requirement of present possession at the time of the motion. See United States v. Wells, 519 U.S. 482, 496, 117 S.Ct. 921, 137 L.Ed.2d 107 (1997) ( “[I]t is at best treacherous to find in congressional silence alone the adoption of a controlling rule of law.” (quoting NLRB v. Plasterers' Local Union No. 79, 404 U.S. 116, 129–30, 92 S.Ct. 360, 30 L.Ed.2d 312 (1971)) (internal quotation marks omitted)).

Moreover, other courts agree with this interpretation of “during the case” within the context of § 542(a). See, e.g., Beaman v. Vandeventer Black, LLP ( In re Shearin ), 224 F.3d 353, 356 (4th Cir.2000) (“We construe the language ‘during the case’ to refer to the entire bankruptcy case....”) (citation omitted); Newman v. Schwartzer ( In re Newman ), 487 B.R. 193, 199–200 (9th Cir. BAP 2013)³ (finding “debtor [had] ‘possession, custody, or control’ of the property ‘during the case’ ” although debtor had spent the tax refund at issue by the time the turnover motion was filed).

2. “Or the Value of Such Property”

Second, the phrase “or the value of such property” indicates that the entity need not be in possession of the property itself when the trustee files the motion for turnover. See11 U.S.C. § 542(a). Because § 542(a) permits a trustee to recover “the value of [the] property,” instead of just the property itself, possession cannot be required in order to bring the motion for turnover. This phrase shows that the trustee has a remedy in a case where an entity was “in possession” of estate property at some point “during the case,” but lost possession of that property by the time the trustee brought the motion for turnover. In such a case, the trustee may recover the “value of such property” from the entity previously in possession.

Again, other courts espouse this view. “If the statute were read to require current possession of the property, the language allowing a trustee to alternatively recover ‘the value of the property’ would become superfluous, as the trustee could only recover the property itself.” In re Newman, 487 B.R. at 200–01 (quoting Jubber v. Ruiz ( In re Ruiz ), 455 B.R. 745, 751 (10th Cir. BAP 2011)) (internal quotation marks and alterations omitted); see also Boyer v. Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. ( In re USA Diversified Prods., Inc.), 100 F.3d 53, 55–57 (7th Cir.1996) (stating that § 542(a) “requires the delivery of the property or the value of the property,” and finding that a law firm had to turn over the amount of funds it released to debtor between the time of the bankruptcy petition's filing and the turnover motion's filing) (emphasis in original).

While it has been argued that including the phrase “the value of such property” merely continues the pre-Code practice of permitting the trustee to bring a turnover action against someone in possession of the proceeds⁴ of property of the estate, see Brown v. Pyatt ( In re Pyatt ), 486 F.3d 423, 429 (8th Cir.2007), this argument has little force. Congress's “decision to use one word over another in drafting a statute is material.” S.E.C. v. McCarthy, 322 F.3d 650, 656 (9th Cir.2003). We “must presume that Congress intended a different meaning when it uses different words in connection with the same subject.” Ariz. Health Care Cost Containment Sys. v. McClellan, 508 F.3d 1243, 1250 (9th Cir.2007). Here, the Code drafters used the term “value of such property” in § 542(a), not the term “proceeds.” See11 U.S.C. § 542(a). Yet in the immediately preceding section, the drafters used the term “proceeds.” See id. § 541(a)(6). Therefore, Congress did not intend § 542(a)'s language “value of such property” to mean bankruptcy estate property “proceeds.” See McClellan, 508 F.3d at 1250.

In sum, the phrases “or the value of such property” and “during the case” evidence the trustee's power to move for turnover against an entity that does not have possession, custody, or control of property of the estate at the time the motion is filed.

B. Pre–Code Practice

Our reading of § 542(a) is buttressed by pre-Code turnover practice, which, when viewed as a whole, did not require an entity to have possession of the property the trustee sought through turnover at the time the motion was filed.

1. Background

Before the Code's enactment, a trustee had two methods of recovering estate property from an entity who had possession of it at one time. See Boyer v. Davis ( In re U.S.A. Diversified Prods., Inc.), 193 B.R. 868, 875–79 (Bankr.N.D.Ind.1995). The trustee could pursue recovery through either a summary proceeding or a plenary proceeding. See id. at 875. A summary proceeding was a special proceeding conducted by the bankruptcy...