In Re Richard Wheeler

431 B.R. 158

In re Richard WHEELER, Debtor.Richard Wheeler, Appellant,v.Robert Milbank, and Danny Walker, Appellees.

Bankruptcy Case No. 00-33158-HDH-7.

Civil Action No. 3:05-CV-0028-M.

United States District Court,

N.D. Texas,

Dallas Division.

May 19, 2005.

COPYRIGHT MATERIAL OMITTED

Joyce W. Lindauer, Dallas, TX, for Debtor.

MEMORANDUM OPINION AND ORDER

BARBARA M.G. LYNN, District Judge.

On November 3, 2004, the Bankruptcy Court issued an Order, along with Findings of Fact and Conclusions of Law, addressing: (1) the Trustee's Motion to Obtain Turnover of Property of the Estate; and (2) Creditor Danny Walker's Objections to personal property exemptions claimed by Debtor Richard Wheeler (“Wheeler”). Wheeler appeals from the Bankruptcy Court's disposition of these matters. The Court examines the factual findings of the Bankruptcy Court under the clearly erroneous standard of review, and reviews the Bankruptcy Court's legal conclusions de novo. See In re Stembridge, 394 F.3d 383, 385 (5th Cir.2004). For the following reasons, this Court AFFIRMS the Bankruptcy Court's Order.

Background

Wheeler is engaged in the business of capturing, breeding, purchasing, and selling white-tailed deer. In 1995, the State of Texas issued to Wheeler a Scientific Breeder's Permit (“Permit”), which, among other things, gave him the legal right to retain any proceeds he derived from selling white-tailed deer. See Tex. Parks & Wild.Code § 43.357 (Vernon 2005). Wheeler has renewed his Permit annually, in accordance with Tex. Parks & Wild.Code § 43.355. However, pursuant to state law, Wheeler does not have title to the deer. The deer are considered wild animals, and are property of the people of the State of Texas. See id. at § 1.011.

Wheeler filed a Petition for Chapter 11 Bankruptcy relief in December of 1999, in the San Angelo Division of the Northern District of Texas. His case was transferred to the Dallas Division in 2000, and was subsequently converted to a Chapter 7 Petition. In February of 2001, the Bankruptcy Court appointed Robert Milbank as Trustee of the bankruptcy Estate (“Trustee”). The Trustee filed a “Motion to Obtain Turnover of Property of the Estate”, after learning that Wheeler possessed a number of white-tailed deer at the time of his Petition, which, like the Permit, were not disclosed in his schedule of assets.

Wheeler claims the deer are not property of the Estate, because at all times relevant to his bankruptcy Petition, he bred and sold deer in his capacity as an agent of two corporations. He alleges that between 1995 and 2002, all legal rights to the deer belonged to Double Wheel Ranch, Inc., a corporation owned by Wheeler, his family members, and a family trust. Wheeler asserts that in 2002, the rights to the deer were assigned, for no consideration, to a separate corporation, White Tails of the Double Wheel Ranch, Inc., which is owned by a family trust in which Wheeler purportedly has no personal ownership interest.

In its Order of November 3, 2004, the Bankruptcy Court granted the Trustee's Motion. The Bankruptcy Court required Wheeler to account for the deer that were in his possession on the date of his Petition, and any proceeds and offspring derived therefrom. The Bankruptcy Court's Order also sustained Walker's Objection to Wheeler's personal property exemptions.

Analysis

I. The White-Tailed Deer

Wheeler claims the Bankruptcy Court erred in holding that, on the date of his bankruptcy Petition: (1) his Permit became an asset of the bankruptcy Estate; and (2) his interest in the deer he possessed at that time, and all proceeds and offspring of those deer ¹, became property of the bankruptcy Estate.

Wheeler claims that as a matter of law, the Permit cannot be property of the bankruptcy Estate, because it is regulated by the Texas Parks and Wildlife Department, which prohibits Wheeler from transferring the Permit to a third party. He claims the Permit is analogous to a professional license, such as a license to practice law or medicine. Alternatively, Wheeler argues the Permit cannot belong to the Estate because the Permit requires annual renewals. He claims the particular Permit which existed at the time of his 1999 Petition expired, by operation of law, in 2000. See Tex. Parks & Wild.Code § 43.355. ² In adjudicating Wheeler's appeal, the Court finds it unnecessary to address Wheeler's claim that the Permit is not property of his bankruptcy Estate.

Wheeler's right to retain any proceeds he derives from Estate deer is a property right that is distinct from his property right in the Permit itself. See generally, In re Nejberger, 934 F.2d 1300 (3rd Cir.1991) (finding a liquor license, and the debtor's statutory right to renew that license, to be two distinct property rights). Wheeler has not shown the Bankruptcy Court erred in holding that his rights to the Estate deer, and their proceeds, are now property of his Estate. See 11 U.S.C. § 541 (Estate property includes “all legal or equitable interests of the debtor in property as of the commencement of the case”). He has not convinced this Court, which has reviewed the extensive record below, that the following factual conclusions of the Bankruptcy Court are clearly erroneous: (1) the Permit affords rights to Wheeler in his individual capacity, rather than as an agent of the corporations; and (2) Wheeler did not effectuate a valid transfer of his interest in the Estate deer to the corporations, or any other party, as of the date of his Petition. The Bankruptcy Court's conclusion that the testimony to the contrary was not credible is not clearly erroneous.

At oral argument, the Trustee advised the Court that he does not wish to assume or otherwise utilize the Permit, except insofar as is necessary for him to sell the Estate deer to a third party, and collect any proceeds Wheeler has derived from the Estate deer since the date of his Petition. The Court finds this request analogous to cases in which a trustee seeks to collect the accounts receivable of a debtor arising from the debtor's use of a state-issued license to engage in a regulated business, such as liquor sales or shipping. Such accounts receivable are included in a debtor's Estate. See 11 U.S.C. § 541(a). By the same reasoning, the Trustee has a valid turnover claim against Wheeler, as of the Petition date, for the Estate deer and their proceeds, irrespective of whether it is lawful for the Trustee, himself, to exercise rights that arise under the Permit. Even if the Permit is not property of the Estate, the Trustee may arrange a sale of the deer, and Wheeler is obligated, under 11 U.S.C. § 521(3), to exercise his rights under the Permit to cooperate with such a sale. Id. (the debtor must “cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties”).

In the alternative, however, if assumption by the Trustee of the Permit itself is necessary, the Court concludes, based on de novo review, that the Permit is property of the Estate. As a general rule, a “right, privilege, or license to operate or do business, granted or issued under state or federal law”, is property of a debtor's bankruptcy Estate. In re Draughon Training Institute, Inc., 119 B.R. 927, 931 (Bankr.W.D.La.1990) (finding a state-issued certification of a private school was property of the school's bankruptcy estate); see also U.S. v. Cleveland, 951 F.Supp. 1249, 1263 (E.D.La.1997) (“[u]nder traditional property law, owners of licenses are generally considered to have a protective property interest”). FCC broadcast licenses, liquor licenses, gambling licenses, and licenses to operate a Nevada brothel have all been determined to be property of the Estate upon a debtor's bankruptcy. See In re Burgess, 234 B.R. 793 (D.Nev.1999) (citing authorities).

The Fifth Circuit deemed an interest of the debtor not to be property of the Estate in In re Braniff Airways, Inc., 700 F.2d 935 (5th Cir.1983). There, the Court considered a debtor's assertion that the FAA violated the Bankruptcy Code's automatic stay by reassigning the debtor's airport landing slots to other air carriers. See 11 U.S.C. § 362. The Fifth Circuit held the landing slots were not “property of the Estate”, because the Federal Aviation Act conferred on the FAA “unquestionable authority for all aspects of airspace management.” See Braniff, 700 F.2d at 942. The Court found the landing slots were “restrictions on the use of property-airplanes; not property in themselves”. Id., at 942.³ Without elaborating further, Braniff distinguished the debtor's landing slots from cases finding other forms of state and federal licenses, such as radio broadcast licenses and shipping licenses, to be property of a debtor's bankruptcy Estate. Id.,citing LaRose v. FCC, 494 F.2d 1145, 1149 (D.C.Cir.1974), and Barutha v. Prentice, 189 F.2d 29 (7th Cir.1951).

The Court is of the opinion that Braniff implicitly limits itself to a narrow set of facts which are not present here. There, the FAA, which had plenary powers to modify or revoke landing slots, sought to revoke them. Here, the Texas Parks and Wildlife Code has assigned to Wheeler the state's possessory interest in the Estate deer, and an expectancy interest in profits derived from those deer. See Tex. Parks & Wild.Code § 43.357(a)(2). Unlike Braniff, the existence and validity of those rights is not in dispute. The State of Texas has taken no steps to revoke Wheeler's Permit and so long as Wheeler complies with applicable regulations, the Texas Parks and Wildlife Commission does not have discretionary authority to revoke it. See Tex. Parks & Wild.Code § 43.357(b) (limiting the scope of regulations issued by the Texas Parks and Wildlife Commission). The Court finds the Permit more closely resembles liquor licenses and shipping licenses than it does the landing slots upon which Braniff was based. See Barutha, 189 F.2d at 31 (whether the rights under the motor carrier license are “called ‘property’ or an ‘ass...