In re DeGroot

484 B.R. 311

In re Joel DeGROOT, Debtor.

BAP No. 11–8083.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: Nov. 13, 2012.

Decided: Dec. 27, 2012.

ARGUED:Jeff A. Moyer, The Bankruptcy Group, Inc., Wyoming, MI, for Appellant. James R. Oppenhuizen, Keller & Almassian, PLC, Grand Rapids, MI, for Appellee. ON BRIEF:Jeff A. Moyer, The Bankruptcy Group, Inc., Wyoming, MI, for Appellant. James R. Oppenhuizen, Keller & Almassian, PLC, Grand Rapids, MI, for Appellee.

Before: EMERSON, HARRIS, and SHEA–STONUM, Bankruptcy Appellate Panel Judges.

OPINION

GEORGE W. EMERSON, Jr., Bankruptcy Judge.

At issue in this appeal is a November 23, 2011 decision in which the bankruptcy court determined that an unscheduled asset which the chapter 7 trustee had partially administered should be deemed abandoned to the debtor's ex-wife pursuant to 11 U.S.C. § 554(c) and (d). In so doing, the bankruptcy court relied on the “[u]nless the court orders otherwise” language found within § 554(c) and (d) and on the unique procedural and factual background of this particular case.

For the reasons that follow, the Panel affirms the bankruptcy court's determination that the unscheduled asset should be deemed abandoned to the debtor's ex-wife pursuant to 11 U.S.C. § 554(c) and (d).¹

I. ISSUES ON APPEAL

The issue presented by this appeal is whether the bankruptcy court erred in determining that an unscheduled asset which the chapter 7 trustee had partially administered should be deemed abandoned to the debtor's ex-wife pursuant to 11 U.S.C. § 554(c) and (d).

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Western District of Michigan has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). An order to abandon property of the estate is a final order for purposes of appeal. Stark v. Moran (In re Moran), 385 B.R. 799 (6th Cir. BAP 2008) (table); Malden Mills Indus., Inc. v. Maroun (In re Malden Mills Indus., Inc.), 303 B.R. 688, 696 (1st Cir. BAP 2004).

The determination as to the abandonment in this case presents a mixed question of law and fact. Courts faced with reviewing mixed questions of law and fact must break down the issue “into its constituent parts and apply the appropriate standard of review for each part.” Moran v. LTV Steel Co., Inc. (In re LTV Steel Co., Inc.), 560 F.3d 449, 452 (6th Cir.2009). The initial issue of whether the bankruptcy court properly determined that it has the authority to deem property abandoned under 11 U.S.C. § 554(c) or (d) is a question of statutory interpretation which is reviewed de novo. Kottmeier v. United States (In re Kottmeier), 240 B.R. 440, 442 (M.D.Fla.1999). “Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination.” Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (6th Cir. BAP 2007) (citation omitted).

The remaining issue of whether the bankruptcy court properly exercised its discretion under the phrase “[u]nless the court orders otherwise” in § 554(c) and (d) is a question of fact which is reviewed for an abuse of discretion. LPP Mortg., Ltd. v. Brinley, 547 F.3d 643, 648 n. 3 (6th Cir.2008); DeVore v. Marshack (In re DeVore), 223 B.R. 193, 198 (9th Cir. BAP 1998). “An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard.” Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288, 296 (6th Cir. BAP 2008) (citations omitted); see also Mayor of Balt., Md. v. W. Va. (In re Eagle–Picher Indus., Inc.), 285 F.3d 522, 529 (6th Cir.2002) (“An abuse of discretion is defined as a ‘definite and firm conviction that the [court below] committed a clear error of judgment.’ ”) (citation omitted). “The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion.” Barlow v. M.J. Waterman & Assocs. Inc. (In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604, 608 (6th Cir.2000).

III. FACTS

On December 18, 2002, Joel DeGroot and Joy DeGroot obtained a judgment of divorce from the Ottawa County Circuit Court of Michigan. Pursuant to the terms of the divorce, Joel DeGroot was ordered to pay child support to Joy DeGroot for the parties' two minor children. The state court awarded the parties' marital residence to Joy DeGroot and ordered her to pay Joel DeGroot $48,000.00 for his share of equity in the property (“the Receivable”). The $48,000.00 was to be paid in 3 installments as follows: $10,000.00 within 3 months of entry of the divorce judgment; $10,000.00 within 7 years after entry of the divorce judgment; and $28,000.00 when the parties' youngest child reached the age of 18, the home was sold, or Joy DeGroot died or remarried. The final payment of $28,000.00 was to bear interest at the rate of 2% per annum from the date of entry of the divorce. Pursuant to the divorce judgment, the entire $48,000.00 constituted a lien against the marital residence. Joy DeGroot made the first payment of $10,000.00 on March 18, 2003.

A little over two years later, Joel DeGroot (“Debtor”) filed a no-asset chapter 7 petition for bankruptcy relief. Debtor listed Joy DeGroot on Schedule F with a claim of $10,336.33 for “unpaid support and medical bills.” He did not, however, list the Receivable or the lien on the marital residence as assets on his bankruptcy schedules.

While Debtor's case was pending, Joy DeGroot continued to have difficulty collecting child support from Debtor. At some point in 2006, the family court issued a show cause order to the Debtor regarding his poor payment history for child support. In an attempt to resolve the issue and to avoid possible incarceration, Debtor entered into negotiations with Joy DeGroot to settle the child support delinquency.

Although Debtor's bankruptcy attorney, James Sullivan (“Sullivan”), was aware of the state court negotiations, he did not represent Debtor in these negotiations. Sullivan did, however, inform Jeff Moyer, the chapter 7 trustee (“Trustee”), of the negotiations and the proposed settlement. In a January 18, 2006 letter, Sullivan asked the Trustee to abandon the $38,000.00 lien. Given the large number of pre-BAPCPA filings, the Trustee was overwhelmed with work and did not to respond to Sullivan's letter until March 15, 2006. In that letter, the Trustee requested additional information from Sullivan about the lien and the Receivable as well as other property owned by Debtor. On March 22, 2006, the Trustee filed a “Form 1, Individual Estate Property Record and Report, Asset Cases” which identified the Receivable, along with several other types of nonexempt property, as potential assets of the estate.

Sullivan sent the Trustee a second letter on April 30, 2006, asking for the Trustee's position on the state court negotiations. The Trustee did not respond. Sullivan sent the Trustee a third letter on May 15, 2006, requesting an answer on the Trustee's position with regard to the $38,000.00 lien and the money due thereunder. Despite being informed of the state court proceedings, the Trustee took no affirmative steps to halt the negotiations or to intervene in the action.

The ultimate state court settlement reached by Joy DeGroot and Debtor provided that (1) Joy DeGroot would waive her claim to any past or future child support from Debtor, and (2) Debtor would release his lien on the marital residence and pay Joy DeGroot the sum of $11,500.00. The Ottawa County Circuit Court approved the settlement on June 2, 2006 (“Stipulation”). Although Sullivan advised Debtor that it would be necessary to obtain relief from the automatic stay prior to entering the state court settlement, neither Debtor nor Joy DeGroot sought relief from the bankruptcy court prior to entering into the Stipulation.

On February 5, 2007, the Trustee sent a letter to Sullivan stating:

This correspondence is to restart discussions on a case that unfortunately has slipped between the cracks and it appears nothing has transpired in approximately 9 months. I assume nothing of any import has transpired between Mr. DeGroot and his ex-wife given the fact that no lift stay (as required) was ever filed in [Joel] DeGroot's Chapter 7 bankruptcy to allow any state divorce court to re-assert jurisdiction over either Mr. DeGroot or more importantly Mr. DeGroot's assets such as the property settlement to which he's entitled based upon the divorce judgment.

Appellee's Brief at 46. That same day, the Trustee filed a “Notice of Assignment of Divorce Lien” with the Ottawa County Register of Deeds stating that ownership of the lien belonged to Debtor's bankruptcy estate pursuant to 11 U.S.C. § 541(a)(1). Joy DeGroot allegedly did not receive notice of this assignment.

On June 21, 2007, fifteen months after filing his “Form 1,” the Trustee filed a notice of possible dividends to creditors informing them that there might be assets available for distribution. The bankruptcy court served this notice on creditors on June 28, 2007. Joy DeGroot did not file a claim at that time presumably because she believed the state court settlement had extinguished Debtor's liability for child support.

Nine months later, on March 28, 2008, the...