Bloom v. Taos County Board of Commissioners et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
PLAZA DE RETIRO, INC.,
Debtor. 	No. 11-09-10974 SA
LINDA S. BLOOM, Trustee of the
Plaza de Retiro Liquidating Trust,
Plaintiff,
v. 	Adv. No. 11-1133 S
TAOS COUNTY BOARD OF COMMISSIONERS,
and DARLENE J. VIGIL, County Assessor,
Defendants.
MEMORANDUM OPINION ON DEFENDANTS’
MOTION TO DISMISS
This matter is before the Court on a Motion to Dismiss
(“Motion”) filed by the Defendants Taos County Board of
Commissioners (“Taos”) and Darlene J. Vigil, County Assessor
(“Vigil”). 	This adversary proceeding was filed by the Trustee of
the Plaza de Retiro Liquidating Trust, which was formed upon
confirmation of debtor Plaza de Retiro’s Chapter 11 Plan.
Plaintiff appears through her attorneys Hunt & Davis, P.C. (Chris
W. Pierce). 	Defendants appear through their attorney Thuma &
Walker, P.C. (David T. Thuma) and Barbara A. Martinez (Taos
County Attorney) and Robert J. Malone (Assistant Taos County
Attorney). 	The adversary proceeding is titled “Complaint for
Breach of Contract and to Enforce Agreement and for Turnover of
Property of the Estate.” 	The Court reviewed the Order Confirming
Trustee’s Liquidating Plan (main case, doc 462), which has the
Plan attached as Exhibit A, and finds that the Confirmation Order
reserved Bankruptcy Court jurisdiction over the subject matter of
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1The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(A), (K) and/or (O);
and these are findings of fact and conclusions of law as may be
required by Rule 7052 F.R.B.P.
2Therefore, the “Order for Relief” was also March 11, 2009.
11 U.S.C. § 301(b).
3The Court has taken judicial notice of this claim. 	It was
(continued...)
Page -2-
this adversary proceeding 1. 	For the reasons set forth below, the
Court finds that this adversary proceeding should be dismissed.
THE COMPLAINT
Under its “Jurisdictional allegations” section the Complaint
alleges that Debtor filed a voluntary petition under Chapter 11
on March 11, 2009 2. 	On August 13, 2009, the Court granted a
motion by the United States Trustee to appoint a Chapter 11
Trustee. 	Ms. Bloom was so appointed on August 14, 2009. 	The
Trustee filed a liquidating plan on October 19, 2009 (doc 283)
and it was confirmed on April 21, 2011 (doc 462). 	Ms. Bloom is
the Trustee of the Plaza de Retiro Liquidating Trust established
upon confirmation of the plan. 	This adversary proceeding was
filed on August 16, 2011.
The Complaint next alleges that Taos County and the Taos
County Board of Commissioners are political subdivisions of the
State of New Mexico, and that Vigil is the Assessor of Taos
County, New Mexico. 	Taos County filed a Proof of Claim (No. 2-1)
on March 20, 2009 for unpaid property taxes 3. 	The remaining
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3(...continued)
filed with the Clerk’s Office on March 20, 2009 at 8:00 AM. 	The
claim names the creditor as the Taos County Treasurer, and lists
the amount as $10,356.99 for taxes. 	It states that it secured by
real estate and lists itself as a priority claim owed to a
governmental unit under 11 U.S.C. § 507(a)(8). 	It is signed by
Sammy L. Pacheco, Taos County Attorney. 	Four pages of
attachments list the details of four associated 2008 tax bills.
4The letters are attached as Exhibits 1 and 2.
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jurisdictional allegations assert that the Court has
jurisdiction, that this is a core proceeding, and that venue is
proper.
As “General Allegations” the Complaint next states that
Debtor owned real property in Taos County. 	Before Bloom was
appointed Trustee, Defendants attempted to assess the value of
the property at $11.6 million for the year 2009, which was a
sizeable increase from the previously assessed value of $1.9
million.
In December 2009 [sic, October 27, 2009] the Court entered a
Memorandum Opinion (doc 301, p. 9) on borrowing which found that
based on expert testimony, the “Pond Property” was worth at least
$1,250,000, more likely $1,500,000, and perhaps more.
Twice in December counsel for Bloom sent letters to Vigil
and to Gerald E. Nichols (“Nichols”), Taos’ Chief Appraiser,
advising them of the Court’s valuation and requesting a
“rescheduled” protest hearing on the assessment 4 . 	On December
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5The letter is attached as Exhibit 3. 	It is actually signed
“Sammy L. Pacheco, Contract Attorney, Taos County.”
6The letter is attached as Exhibit 4.
Page -4-
22, 2009, Sammy L. Pacheco (“Pacheco”), Taos County Attorney 5,
sent a letter to counsel for Bloom “offering to assess the value
of the property at $5,929,770.00." 	On January 7, 2010, counsel
for Bloom sent Pacheco a letter 6 “accepting Taos County’s offer
to assess the value of the property at $5,929,770.00."
The Trustee then marketed the property, found a potential
buyer, and filed two motions (doc 292, doc 311 (amended)) to sell
all assets of the estate pursuant to 11 U.S.C. § 363. 	The
proposed sale was to Colinas Healthcare, Inc. and the proposed
price was $3,200,000.00.
Closing was scheduled for July 15, 2010. 	The title company
requested payoffs and Taos provided a payoff based on the 2009
assessment of $11.6 million, not the $5,929,770.00 valuation.
The tax issue was not resolved by July 15, 2010 and the title
company refused to escrow funds without the consent of Taos.
Count 1 - Breach of Contract and Enforcement of Agreement
Bloom claims that she and Taos reached a valid and
enforceable agreement establishing the value at $5,929,770.00.
After reaching the agreement, Taos, through its counsel, has
informed Trustee’s counsel that it doubts the agreement is
enforceable. 	Bloom claims that Taos’ refusal to comply with the
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7When considering a motion to dismiss, the trial court
properly considers materials attached to the complaint and may
take judicial notice of court filings. 	Pace v. Swerdlow, 519
F.3d 1067, 1072-73 (10 th Cir. 2008).
Page -5-
agreement causes damages in an amount to be determined at trial,
and seeks costs, attorneys fees, and any other just relief.
Count 2 - Turnover of Property Pursuant to 11 U.S.C. § 542
At the closing, Taos received $94,739.96 based on the 2009
assessment of $11.6 million. 	The additional amounts paid to
Taos because of the higher assessment are property of the estate
pursuant to 11 U.S.C. § 541. 	The Trustee seeks a turnover of the
funds.
Exhibit 1 7
Plaintiff’s exhibit 1 is a letter (and fax) dated December
2, 2009 from Chris W. Pierce to Gerald E. Nichols, the Chief
Appraiser in Taos County Assessor’s Office. 	It refers to
telephone messages that Mr. Pierce had left for Mr. Nichols
during the previous weeks. 	The messages were inquiring about a
property tax protest filed by Mr. and Mrs. Himes (officers of
debtor, now out-of-possession) concerning the Plaza de Retiro
property before Ms. Bloom was appointed trustee. 	It continues:
It further appears that your office contacted Linda
Bloom, the Chapter 11 Trustee, and informed her of a
hearing on the protest. 	Ms. Bloom had no previous
notice of the hearing, and was unable to attend the
hearing or properly prepare for the hearing due to her
previous schedule. 	Therefore, Ms. Bloom sent you a
protest form which purported to withdraw the protest.
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8 To be clear(er), though the background of how the estate
found itself in this position bears little on the outcome of this
litigation, it appears from the record that Ms. Bloom did not
learn, until the day before the tax protest hearing was scheduled
in Taos (approximately 100 miles from her office in Albuquerque),
that the debtor in possession had filed the protest. 	This late
revelation was despite her investigation of the affairs and
status of the chapter 11 estate that she was now trustee for as a
result of the forced departure of previous management.
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(Doc 1, p. 7). 8 	The letter encloses a copy of a portion of this
Court’s Memorandum Opinion (doc 301) which found that the value
of the property was between $1,250,000 and $1,500,000 (or more)
and a copy of a Broker Opinion of Value opining that the value
was between $3,120,582 and $4,929,770. 	Mr. Pierce then states
the Trustee’s position that Taos County must obtain relief from
the automatic stay if it wanted to increase the tax valuation.
He requests that Taos County reschedule a protest hearing and put
the matter back on a schedule to provide evidence of value. 	He
also states the Trustee’s intention to file an adversary
proceeding in the Bankruptcy Court to reduce the property
valuation if the protest is not reinstated. 	He also informs the
County that there is a pending sale of the property which will
result in payment of the taxes.
Exhibit 2
Plaintiff’s exhibit 2 is a letter (and fax) dated December
18, 2009 from Chris W. Pierce to Darlene J. Vigil, Taos County
Assessor and Gerald E. Nichols, the Chief Appraiser in Taos
County Assessor’s Office. 	It is short and direct. 	It states
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that because there was no response to the December 2, 2009 letter
Mr. Pierce has drafted an adversary complaint (which was
apparently attached to the original letter, but not to the
Exhibit 2 copy) seeking to value Plaza de Retiro’s property at
$3,200,000 which he intended to file if the tax issues were not
resolved.
Exhibit 3
Plaintiff’s exhibit 3 is a letter (apparently received by
fax) dated December 22, 2009 from Sammy L. Pacheco, Contract
Attorney, Taos County to Chris W. Pierce. 	It acknowledges
receipt of the two letters and states, in part:
In consultation with Taos County Chief Appraiser, Taos
County is willing to adopt the Grubb and Ellis report
that establishes the overall value of the Retiro
properties at $5,929,770.00. 	Your $3,200,000.00 value
is based on a distressed sale that does not accurately
reflect the current value of the properties. 	I will
await your reply.
Exhibit 4
Plaintiff’s exhibit 4 is a letter (and fax) dated January 7,
2010 from Mr. Pierce to Samuel L. Pacheco Esq., Taos County
Attorney; Darlene J. Vigil, Taos County Assessor; and Gerald E.
Nichols, Chief Appraiser at the Taos County Assessor’s Office.
It states, in full:
Dear Sirs and Madam:
This follows Mr. Pacheco's letter dated December
22,2009. 	Linda S. Bloom, the Chapter 11 Trustee in the
Plaza de Retiro Chapter 11 Bankruptcy case, will agree
to the appraisal of the overall value of the Plaza de
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9Fed.R.Civ.P. 12(b) applies in adversary proceedings. 	See
Fed.R.Bankr.P. 7012(b).
Page -8-
Retiro properties at $5,929,770.00, for purposes of the
Taos County ad valorem property tax assessment only.
Please let me know what further documentation Taos County
needs to complete this matter. 	We are looking into whether
we need to obtain approval from the Bankruptcy Court for
this agreement, and will contact you soon regarding any such
approval, if need [sic].
Thank you.
/s/ Chris W. Pierce
DEFENDANTS’ MOTION TO DISMISS
In lieu of an answer, Defendants filed a Motion to Dismiss
for failure to state a claim (Fed.R.Civ.P. 12(b)(6)) and for lack
of subject matter jurisdiction (Fed.R.Civ.P. 12(b)(1)) 9.
Defendants argue that Count 1 is a contract claim, but that no
contract was formed by the combination of letters attached to the
complaint. 	Furthermore, they claim that any offer to contract
was not supported by consideration. 	However, even if there were
a contract, it would be void because it contains provisions that
are prohibited by the New Mexico Constitution. 	Finally,
Defendants claim that the alleged contract would not be
enforceable because it was never approved by the Bankruptcy Court
pursuant to Rule 9019 which governs compromises of controversies.
Defendants then propose two grounds under which the Court lacks
jurisdiction. 	First, they assert the Eleventh Amendment.
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10 Defendants’ Motion asserts both Rules 12(b)(1) and (6) for
dismissal. 	Because the Court is ruling based on 12(b)(6) alone,
it will not discuss the standards for dismissal under 12(b)(1).
The two standards are, however, different. 	See Walker v. THI of
New Mexico at Hobbs Center, 803 F.Supp.2d 1287, 1294-96 (D. N.M.
2011) for a detailed and up to date discussion of the 12(b)(1)
standards.
Page -9-
Second, they argue that 11 U.S.C. § 505 establishes
jurisdictional requirements which Plaintiff does not satisfy.
STANDARDS FOR A MOTION TO DISMISS UNDER RULE 12(b)(6) 10
Under rule 12(b)(6), a court may dismiss a
complaint for “failure to state a claim upon which
relief can be granted.” 	Fed.R.Civ.P. 12(b)(6). 	“The
nature of a Rule 12(b)(6) motion tests the sufficiency
of the allegations within the four corners of the
complaint after taking those allegations as true.”
Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994).
The sufficiency of a complaint is a question of law,
and when considering and addressing a rule 12(b)(6)
motion, a court must accept as true all well-pleaded
factual allegations in the complaint, view those
allegations in the light most favorable to the
non-moving party, and draw all reasonable inferences in
the plaintiff's favor. 	See Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct.
2499, 168 L.Ed.2d 179 (2007); Moore v. Guthrie, 438
F.3d 1036, 1039 (10th Cir. 2006); Hous. Auth. of Kaw
Tribe v. City of Ponca, 952 F.2d 1183, 1187 (10th Cir.
1991).
A complaint challenged by a rule 12(b)(6) motion
to dismiss does not require detailed factual
allegations, but a plaintiff's burden to set forth the
grounds of his or her entitlement to relief “requires
more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will
not do.” 	Bell Atl. Corp. v. Twombly, 550 U.S. 544,
546, 127 S.Ct. 1955, 167 L.Ed.2d 929 	(2007). 	See
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949,
173 L.Ed.2d 868 (2009) (stating that a plaintiff's
complaint must set forth more than a threadbare recital
“of the elements of a cause of action, supported by
mere conclusory statements”). 	“Factual allegations
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Page -10-
must be enough to raise a right to relief above the
speculative level, on the assumption that all the
allegations in the complaint are true (even if doubtful
in fact).” 	Bell Atl. Corp. v. Twombly, 550 U.S. at
545, 127 S.Ct. 1955 (citation omitted). 	To survive a
motion to dismiss, a plaintiff's complaint must contain
sufficient facts that, if assumed to be true, state a
claim to relief that is plausible on its face. 	See
Bell Atl. Corp. v. Twombly, 550 U.S. at 570, 127 S.Ct.
1955; Mink v. Knox, 613 F.3d 995 (10th Cir. 2010). 	“A
claim has facial plausibility when the pleaded factual
content allows the court to draw the reasonable
inference that the defendant is liable for the
misconduct alleged.” 	Ashcroft v. Iqbal, 129 S.Ct. at
1940, 129 S.Ct. 1937. 	“Thus, the mere metaphysical
possibility that some plaintiff could prove some set of
facts in support of the pleaded claims is insufficient;
the complaint must give the court reason to believe
that this plaintiff has a reasonable likelihood of
mustering factual support for these claims.” 	Ridge at
Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177
(10th Cir. 2007). The United States Court of Appeals
for the Tenth Circuit has stated:
“[P]lausibility” in this context must refer to the
scope of the allegations in a complaint: if they are so
general that they encompass a wide swath of conduct,
much of it innocent, then the plaintiffs “have not
nudged their claims across the line from conceivable to
plausible.” 	The allegations must be enough that, if
assumed to be true, the plaintiff plausibly (not just
speculatively) has a claim for relief.
Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.
2008) (quoting Bell Atl. Corp. v. Twombly, 127 S.Ct. at
1974) (citations omitted).
Genesee County Employees’ Retirement System v. Thornburg Mortgage
Securities Trust 2006-3, ___ F.Supp.2d ___, 2011 WL 5840482 at
*23-24 (D. N.M. 2011).
NEW MEXICO’S PROPERTY TAX SCHEME
Chapter 7, Article 1 NMSA 1978 is the “Tax Administration
Act.” 	§ 7-1-1 NMSA 1978. 	The “Property Tax Code” appears in
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Page -11-
Articles 35 through 38 of Chapter 7 NMSA 1978. 	§ 7-35-1 NMSA
1978. 	Article 36 deals with valuation of property. 	It also
establishes the general rule that “all property is subject to
valuation for property taxation purposes under the Property Tax
Code if it has a taxable situs in the state.” 	§ 7-36-7 NMSA
1978. 	Article 37 imposes the property tax. 	“A tax is imposed
upon all property subject to valuation for property taxation
purposes under Article 36 of Chapter 7 NMSA 1978. 	The tax shall
be imposed at the rates authorized and in the manner and for the
purposes specified in this article.” 	§ 7-37-2 NMSA 1978.
Article 38 deals with the administration and enforcement of the
property tax laws.
Property tax calculations and the valuations underlying them
are presumed to be correct.
Values of property for property taxation purposes
determined by the division or the county assessor are
presumed to be correct. 	Determinations of tax rates,
classification, allocations of net taxable values of
property to governmental units and the computation and
determination of property taxes made by the officer or
agency responsible therefor under the Property Tax Code
are presumed to be correct.
§ 7-38-6 NMSA 1978. 	Values for property taxation purposes, with
certain exceptions not relevant here, are determined as of
January 1 of each year. 	§ 7-38-7 NMSA 1978. 	Depending on which
agency performs the valuation, either the county assessor mails a
notice of the net taxable value of the property to the owner by
April 1, or the tax department the same notice by May 1. 	§ 7-38-
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11 Virtually parallel provisions apply to protests to the tax
department. 	See § 7-38-22 et seq. NMSA 1978.
Page -12-
20 NMSA 1978. 	The property owner may protest the value (or
classification) of the property:
A. 	A property owner may protest the value or
classification determined for his property for property
taxation purposes, the allocation of value of his
property to a particular governmental unit or a denial
of a claim for an exemption or for a limitation on
increase in value either by:
(1) filing a petition of protest with the director or
the county assessor as provided in the Property Tax
Code; or
(2) filing a claim for refund after paying his taxes as
provided in the Property Tax Code.
B. 	The initiation of a protest under Paragraph (1) of
Subsection A of this section is an election to pursue
that remedy and is an unconditional and irrevocable
waiver of the right to pursue the remedy provided under
Paragraph (2) of Subsection A of this section.
§ 7-38-21 NMSA 1978. 	A protest must be filed with the county
assessor no later than April 1 or thirty days after the mailing
the notice of valuation. 	§ 7-38-24(B) NMSA 1978 11 . 	The assessor
in turn notifies the owner by certified mail of the date, time
and place to appear to support the petition. 	§ 7-38-24(C) NMSA
1978. 	The Tax Administration Act provides for the creation of
“county valuation protests boards.” 	§ 7-38-25(A) NMSA 1978. 	The
board conducts the protest hearing and a final action and order
must be signed by the chairman within thirty days after the
hearing, but the time may be extended by the parties. 	§ 7-38-
27(B) NMSA 1978. 	All protests shall be decided within one
hundred eighty days of the filing of the protest. 	§ 7-38-23(C)
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Page -13-
NMSA 1978. 	The protest “shall” be denied if the property owner
fails, without reasonable justification, to appear at the
hearing. 	Id.
RELEVANT BANKRUPTCY CODE SECTIONS
Section 505, Determination of tax liability, contains, in
relevant part:
(a)(1) Except as provided in paragraph (2) of this
subsection, the court may determine the amount or
legality of any tax, any fine or penalty relating to a
tax, or any addition to tax, whether or not previously
assessed, whether or not paid, and whether or not
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction.
(2) The court may not so determine--
(A) the amount or legality of a tax, fine, penalty, or
addition to tax if such amount or legality was
contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction
before the commencement of the case under this title;
...
(C) the amount or legality of any amount arising in
connection with an ad valorem tax on real or personal
property of the estate, if the applicable period for
contesting or redetermining that amount under
applicable nonbankruptcy law has expired.
Section 108, Extension of time, provides in relevant part:
(a) If applicable nonbankruptcy law, an order entered
in a nonbankruptcy proceeding, or an agreement fixes a
period within which the debtor may commence an action,
and such period has not expired before the date of the
filing of the petition, the trustee may commence such
action only before the later of--
(1) the end of such period, including any suspension of
such period occurring on or after the commencement of
the case; or
(2) two years after the order for relief.
COUNT 1 - BREACH OF CONTRACT
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12 That remedy is to file a claim for refund after paying
taxes as provided in the property tax code. 	§ 7-38-21(A)(2) NMSA
1978. 	Claims for refund are filed as a civil action in the
district court, and parties can file appeals to the court of
(continued...)
Page -14-
Despite Plaintiff’s characterization of count 1 as a claim
for breach of contract, it is a veiled attempt to revalue real
estate for tax purposes that asks the Court to determine that the
property tax is vastly lower than what the County of Taos
calculated. 	See In re Powell-Garvey Co., 2006 WL 6885807 (Bankr.
S.D. Ga. 2006)(No matter how characterized, the bankruptcy court
is limited by section 505(a)(2)(C) when asked to determine the
legality of any amount arising in connection with ad valorem
taxes.) 	The Court will treat Count 1 as governed by section 505.
First, from the Complaint, the Court finds that Mr. and Mrs.
Himes filed a tax protest on behalf of Plaza de Retiro. 	The
Court assumes that the protest was timely filed because the
County set a hearing on the protest. 	Sometime before December 2,
2009 the trustee withdrew the protest. 	See exhibit 1. 	By
December, 2009, the deadline for filing protests of 2009 taxes
had passed. 	§ 7-38-24(B) NMSA 1978. 	Count 1 should be dismissed
as untimely.
Second, by filing the protest Plaza de Retiro made
an unconditional and irrevocable waiver of the right to pursue
the remedy provided under Paragraph (2) of Subsection A of this
section 12 (allowing judicial review). 	§ 7-38-21(B) NMSA 1978.
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12 (...continued)
appeals. 	§ 7-38-40 NMSA 1978.
13 Given the foregoing, the Court does not need to address
Defendants’ other arguments.
Page -15-
Plaza de Retiro cannot now evade its election to pursue
administrative remedies only. 	Count 1 should be dismissed.
Third, Bankruptcy Code section 108 provides no help. 	This
adversary proceeding was filed August 16, 2011, more than two
years after the order for relief, which was March 11, 2009.
Anything that was extended by section 108 has run. 	Count 1
should be dismissed. 13
Count 1 will be dismissed.
COUNT 2 - TURNOVER
Turnover is governed by Bankruptcy Code section 542, which
provides in part:
[A]n entity, other than a custodian, in possession,
custody, or control, during the case, of property that
the trustee may use, sell, or lease under section 363
of this title, or that the debtor may exempt under
section 522 of this title, 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). 	A bankruptcy trustee has no greater rights
in property than the debtor had at the time of the petition.
Weinman v. Graves (In re Graves), 609 F.3d 1153, 1156 (10 th Cir.
2010), cert. denied, 131 S.Ct. 906 (2011) (Citation omitted.)
Plaza de Retiro had no right to order Taos County to reduce its
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Page -16-
property tax valuation as of the petition date. 	The bankruptcy
trustee also had no such right. 	Therefore, Taos County had
nothing to deliver. 	See also Id. at 1157 (citing Maggio v. Zeitz
(In re Luma Camera Serv., Inc.), 333 U.S. 56, 64 (1948)(Holding
that the primary condition of turnover relief is possession of
existing chattels or their proceeds capable of being surrendered
by the person ordered to do so.)(Former law)) See also Las Vegas
Casino Lines, LLC v. Abbott (In re Las Vegas Casino Lines, LLC),
454 B.R. 223, 227 (Bankr. M.D. Fla. 2011):
Turnover pursuant to 11 U.S.C. Section 542 is an
appropriate cause of action only where title to the
tangible property or money due is not in dispute.
Charter Crude Oil Co. v. Exxon Co., U.S.A. (In re
Charter Co.), 913 F.2d 1575, 1579 (11th Cir. 1990).
“Instead, Section 542 allows trustees and debtors in
possession to recover property that is clearly property
of the debtor.” 	In re Ven–Mar Int'l, Inc., 166 B.R.
191, 193 (Bankr. S.D. Fla. 1994). 	“[T]he purpose of
the turnover provision is to provide debtors with the
ability to recover property, not the ability to recover
property which may be owed to debtors.” In re Olympia
Holding Corp., 221 B.R. 995, 998 (Bankr. M.D. Fla.
1998).
and DII Northwest LLC v. Carey (In re National Jockey Club), 451
B.R. 825, 830 (Bankr. N.D. Ill. 2011):
Turnover is not intended as a method of
determining the disputed rights of parties; it is
intended as a remedy to obtain what is already
acknowledged to be property of the bankruptcy estate.
Krol v. Crosby (In re Mason), 386 B.R. 715, 721 (Bankr.
N.D. Ill. 2008) (citing Grochocinski v. Allstate Ins.
Co. (In re Lyckberg), 310 B.R. 881, 888 (Bankr. N.D.
Ill. 2004)). 	A turnover action cannot be used as a
tool to acquire property the debtor did not have a
right to possess or use at the commencement of a case.
See Midway Aircraft Eng'g, Inc. v. Am. Airlines, Inc.
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(In re Midway Airlines), 221 B.R. 411, 458 (Bankr. N.D.
Ill. 1998).
A breach of contract action may not be transformed
into an action for turnover. 	Sokol v. Mass. Mut. Life
Ins. Co. (In re Sokol), 60 B.R. 294, 296 (Bankr. N.D.
Ill. 1986); Borock v. Turner Constr. Co. (In re Sardo
Corp.), 95 A. 01620, 1996 WL 362756, at *14 (Bankr.
N.D. Ill. June 11, 1996); United States v. Inslaw,
Inc., 932 F.2d 1467, 1472 (D.C. Cir. 1991); DHP
Holdings II Corp. v. Peter Skop Indus., Inc. (In re DHP
Holdings II Corp.), 435 B.R. 220, 226 (Bankr. D. Del.
2010); Andrew Velez Constr., Inc. v. Consol. Edison Co.
of N.Y., Inc. (In re Andrew Velez Constr., Inc.), 373
B.R. 262, 273 (Bankr. S.D. N.Y. 2007).
By asserting a turnover claim, Plaintiff puts the
cart before the horse. Plaintiff first asserts that its
allegation that Defendant's alleged misappropriation of
$1.2 million entitles Plaintiff to recover those funds
from Defendant. 	However, a simple allegation of
wrongdoing by Defendant, even when backed by a
resolution of HNL's Board, does not create a legally
enforceable obligation of the type contemplated by §
542(a). 	There is a difference between property
potentially owed to a debtor and property owned by the
debtor.
(Emphasis in original). 	And see Raven II Holdings v. Quest Title
Co. (In re W.S.F.-World Sports Fans, LLC, 367 B.R. 786, 793
(Bankr. D. N.M. 2007)(“However, ‘[i]t is settled law’ that
turnover actions under § 542 cannot be used ‘to demand assets
whose title is in dispute.’”)(citation omitted.)
Count 2 fails to state a claim for turnover.
The Court will enter an Order dismissing this adversary
proceeding.
Honorable James S. Starzynski
United States Bankruptcy Judge
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Date Entered on Docket: 	April 11, 2012
Copies to:
Chris W Pierce
Hunt & Davis, P.C.
2632 Mesilla St. NE
Albuquerque, NM 87110
David T Thuma
500 Marquette Ave NW Ste 650
Albuquerque, NM 87102-5309
Barbara A. Martinez
Taos County
105 Albright St Ste G
Taos, NM 87571
Robert J Malone
Taos County Legal Department
105 Albright St. Suite G
Taos, NM 87571
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