White v. Boston
| Decision Date | 31 August 1989 |
| Docket Number | Bankruptcy No. IP 84-4830 R.,No. IP 88-970-C,IP 88-970-C |
| Citation | 104 BR 951 |
| Parties | Richard J. WHITE and Judith E. White, Appellants, v. Richard E. BOSTON, Appellee. In re Richard J. WHITE and Judith E. White, Debtors. |
| Court | U.S. District Court — Southern District of Indiana |
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Sigmund J. Beck, John M. Rogers, Bamberger & Feibleman, Indianapolis, for appellants.
William J. Tucker, Klineman, Rose, Wolf and Wallack, Indianapolis, for appellee.
ENTRY
The appellant-debtors in this case, Richard and Judith White, seek to overturn a bankruptcy judge's decision to reopen their estate for further administration. The principal issues before this court are whether the trustee has standing to petition for reopening, and whether the action is barred by the Bankruptcy Code's statute of limitation. Because these are questions of law, they are subject to de novo review by this court on appeal. Matter of Evanston Motor Co., Inc., 735 F.2d 1029 (7th Cir.1984); In re Sanderfoot, 92 B.R. 802 (E.D.Wisc.1988); In re Cricker, 46 B.R. 229 (N.D.Ind.1985).
For the reasons stated below, the bankruptcy court is affirmed with respect to the trustee's standing, and the case is remanded to determine whether the trustee can adduce sufficient evidence to justify reopening the debtors' estate.
The debtors filed a joint Chapter 7 petition on December 20, 1984, and a trustee was appointed the same day. After evaluating the debtors' petition and schedule of assets and liabilities, the trustee filed a report of No Distribution on March 5, 1985, and the debtors received a discharge on May 28, 1985. On May 10, 1988 — nearly three years after the debtors were discharged — the trustee moved to reopen the estate for the purpose of administering assets that were not listed in the debtors' schedules. Specifically, the trustee seeks to void an undisclosed third mortgage on the debtors' home, and to administer "other tangible and intangible personal property not previously disclosed by Debtor." Trustee's Report of Possible Assets and Application to Reopen Estate, p. 2 (the "Report").
The bankruptcy court granted the petition to reopen on May 11, 1988; the debtors moved to set aside the order to reopen, and a hearing on the debtors' motion was held on July 12, 1988. At the hearing the court concluded that the trustee had valid reasons to reopen the estate (Transcript of Hearing, p. 10), and denied the debtors' motion.1
The debtors appeal this ruling on several grounds. First, they contend that the trustee lacks standing to petition for reopening. Second, they argue that the bankruptcy court abused its discretionary power in reopening the estate, because the trustee's intended voiding actions are barred by the statute of limitations, and because the property the trustee seeks to administer is valueless. Finally, the debtors assert that the trustee's motions to reopen should be barred by the equitable doctrine of laches.
Section 350(b) of the Bankruptcy Code, Title 11 U.S.C., empowers a bankruptcy court to reopen a case "to administer assets, to accord relief to the debtor, or for other cause." Rule 5010, Rules of Bankruptcy Procedure, provides that a case may be reopened "on motion of the debtor or other party in interest pursuant to § 350(b) of the Code." The debtors assert that the trustee is not a "party in interest" within the meaning of Rule 5010, and thus lacks standing to petition for reopening.
Debtors rely upon In re Ayoub, 72 B.R. 808 (Bankr.M.D.Fla.1987) and Matter of Paine, 127 F. 246 (W.D.Ky.1904) () for the proposition that trustees lack standing to reopen. These cases essentially hold that after an estate has been closed, the trustee has no cognizable interest because he is a former trustee whose rights and duties ended at the time of closing. In re Ayoub, 72 B.R. at 812, Matter of Paine, 127 F. at 249. The court finds this reasoning unpersuasive.
First, the argument is overly formalistic. Followed to its logical conclusion, it would also preclude creditors from seeking a reopening to administer undisclosed assets on the grounds that they would merely be former creditors. Moreover, it is established case law that a trustee's powers are terminated only when the estate has been properly closed.2 It would be incongruous to permit a debtor who has failed to disclose assets to use this failure (and the subsequent erroneous closing) as a shield against reopening. The distinction between a "trustee" and a "former trustee" urged by the debtors is semantic rather than substantive, and does not effect a talismanic change in the trustee's legal status. Therefore, the mere closing of an estate cannot in of itself prohibit trustee standing.
Second, there is no indication in the legislative history that Rule 5010's "party in interest" was intended to exclude trustees. The superceded Rule 515 permitted any "other person" to move for reopening. The court in In re Stanke did not find this substitution of phrases to work a substantial change in the rules on reopening, nor does this court. The trustee not only comes within the "other person" language of former Rule 515, but he is also the "natural person to hold and to exercise the power to reopen if his duty is unfinished." In re Stanke, 41 B.R. at 381.3
Third, other bankruptcy rules indicate that the phrase "party in interest" encompasses trustees. Rules 2002(a) and (b) specifically define "parties in interest" to include "the debtor, the trustee, all creditors and indenture trustees. . . ." (Emphasis added). Similarly, a trustee must be within the ambit of "party in interest" in section 4004(b), which permits interested parties an extention of time to object to a discharge, because section 727(c)(1) expressly authorizes trustees to file such complaints. 11 U.S.C. § 727(c)(1).
Finally, it should be noted that several courts, construing both the present Bankruptcy Code and the prior Bankruptcy Act of 1898, have ruled either expressly (In re Stanke, 41 B.R. at 381; Brangan v. United States, 373 F.Supp. 1050, 1052 (E.D.Va. 1973)) or implicitly (In re Candor Diamond Corp., 76 B.R. 342 (Bankr.S.D.N.Y. 1987); In re Butcher, 72 B.R. 247 (Bankr. E.D.Tenn.1987); In re Penland, 34 B.R. 536 (Bankr.E.D.Tenn.1983)) that trustees have standing to move for reopening. Indeed, some courts have suggested that bankruptcy courts have discretionary power to reopen estates sua sponte pursuant to section 350(b) () as long as the existence of unadministered assets is brought to its attention in some competent manner, regardless of the source of the information. See In re Thomas, 204 F.2d 788, 791 (7th Cir.1953); In re Joslyn's Estate, 171 F.2d 159, 164 (7th Cir.1949); In re Searles, 70 B.R. 266 (D.R.I.1987). See also In re Mullendore, 741 F.2d 306, 308 (10th Cir.1984); Schofield v. Moriyama, 24 F.2d 473, 474 (9th Cir.1928). Although the issue of whether a bankruptcy court can reopen an estate sua sponte is not before this court, these cases clearly support the proposition that a trustee could be the source of the information justifying a reopening.
For the reasons stated above, this court finds that the bankruptcy court did not abuse its broad discretionary power4 to reopen the case. The court holds that the trustee is a "party in interest" within the meaning of Rule 5010, and thus is a proper party to move for a reopening.
The trustee admittedly seeks to void a mortgage on the debtors' home,5 and was appointed almost three years before moving to reopen. Furthermore, the debtors' estate was closed three years before the trustee's motion. Under the plain language of section 546(a), the trustee's motion appears to be barred.
From the discussion above, however, it is clear that the closing of a case cannot trigger section 546(a)(2) unless the case has been properly closed, i.e., the assets fully administered.6 In the present case, previously undisclosed assets have been alleged. To permit an erroneous closing to bar reopening would allow the debtors to profit from their own misconduct. Moreover, there seems to be some consensus that section 546(a)(2) was written without considering the possibility that a closed case could subsequently be reopened. In re Stanke, 41 B.R. at 381; 4 Collier on Bankruptcy § 546.022 (15th ed.). For these reasons the court finds that the trustee's motion was not barred by section 546(a)(2).
Whether the trustee's motion should be denied because it was brought more than two years after the trustee was appointed presents a more difficult question. The erroneous prior closing is irrelevant to this inquiry, because the two year limitations prescribed by section 546(a)(1) would bar the trustee's action "even if the case had never been closed." In re Petty, 93 B.R. 208, 212 (9th Cir. BAP 1988); In re Stanke, 41 B.R. at 381; Matter of Burstein-Applebee, 30 B.R. 779, 780-81 (Bankr.W.D.Mo. 1983) 4 Collier on Bankruptcy § 546.022 (15th ed.). Relying upon the plain language of the statute, courts have refused requests by successor trustees for additional time to bring actions, even where the debtor has "traipsed through the various chapters of the Code," In re Sandra Cotton, Inc., 92 B.R. 595, 597...
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