Bowers et al v. Biggerstaff et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/11/06
William Leroy Bowers, et al. v. Guilford George Biggerstaff, et al.
04-01106
Order Granting [5-1] Motion To Dismiss Adversary Proceeding for Failure to
State a Claim by Guilford George Biggerstaff, Barbara Jean Biggerstaff .
Received on: 2004-09-22 14:58:10.000
2004-09-22 00:00:00.000
2004-09-22 00:00:00.000
Patti Hennessy
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: WILLIAM LEROY BOWERS and No. 7-04-12007 MA
PATRICIA JEAN BOWERS,
Debtors.
______________________________________________________________________________
WILLIAM LEROY BOWERS and
PATRICIA JEAN BOWERS,
Plaintiffs,
v. Adversary No. 04-1106 M
GUILFORD GEORGE BIGGERSTAFF and
BARBARA JEAN BIGGERSTAFF,
Defendants.
ORDER GRANTING MOTION TO DISMISS
THIS MATTER is before the Court on the Motion to Dismiss for Failure to State a Claim
(“Motion”) filed by Defendants Guilford George Biggerstaff and Barbara Jean Biggerstaff, by and
through their attorney of record, Gary B. Ottinger. Plaintiffs’ cause of action is based on the turnover
provision of 11 U.S.C. § 542(a). The Court heard oral argument on the Motion, after which the Court
took the matter under advisement. Because Plaintiffs’ allegations do not fit within the parameters for a
turnover action under 11 U.S.C. § 542(a), the Court will grant the Motion and dismiss this adversary
proceeding.
DISCUSSION
Plaintiffs’ Complaint alleges the following: 1) that the Defendants, as sellers, entered into a real
estate contract with Plaintiffs, as purchasers, for approximately twenty acres of land in Catron County,
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New Mexico; 2) that prior to the filing of the Plaintiffs’ bankruptcy petition, Defendants wrongfully
terminated the real estate contract and sold ten of the twenty acres covered by the real estate contract;
3) that the Plaintiffs continue to occupy the remaining ten acres; 4) that the Plaintiffs have claimed an
exemption in their property interest under 11 U.S.C. § 522(d)(1); and 5) that the property is not of
inconsequential value. Based on the foregoing, Plaintiffs request turnover pursuant to 11 U.S.C. §
542(a), asserting that the Defendants should be ordered to provide a deed to the trustee for the ten
acres now occupied by the Plaintiffs.
Motions to dismiss for failure to state a claim are governed by Rule 12(b)(6), Fed.R.Civ.P.,
made applicable to adversary proceedings by Rule 7012, Fed.R.Bankr.P. In considering a motion to
dismiss, the Court must accept all well pleaded facts as if they were true, and view those facts “‘ in the
light most favorable to the non-moving party.’” County of Santa Fe, N.M. v. Public Service Co. of
New Mexico, 311 F.3d 1031, 1034 (10th Cir.2002) (quoting Sutton v. Utah State Sch. for the
Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir.1999)). “[A] complaint should not be dismissed for
failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78
S.Ct. 99, 102, 2 L.Ed.2d 80, (1957).
Turnover actions are governed by 11 U.S.C. § 542(a). That section provides:
Except as provided in subsection (c) or (d) of this section, an 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).
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Sections 363 and 522, in turn, concern “property of the estate” which is defined in 11 U.S.C. § 541.
11 U.S.C. § 363(b)(1) (“The trustee, . . . may use, sell or lease . . . property of the estate.”); 11
U.S.C. § 522(b) (“an individual debtor may exempt from property of the estate . . .”). Thus a pre-
requisite for an action for turnover is a showing that the property Plaintiffs seek to recover is property
of the estate. See In re Lauria, 243 B.R. 705, 708 (Bankr.N.D.Ill. 2000) (burden is usually on the
debtor or trustee seeking turnover to show that the asset is part of the bankruptcy estate) (citation
omitted); Motel Investment Group, Inc. v. Wu (In re Motel Investment Group, Inc.), 164 B.R.
283, 292 (Bankr.N.D.Ill. 1994) (before court can grant a request for turnover, debtor must show an
interest in the property it seeks). “Property of the estate” has a very broad meaning, and includes “all
legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. §
541. In U.S. v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), the
Supreme Court held that personal property of the debtor seized by the Internal Revenue Service pre-
petition is nevertheless subject to the turnover provisions of 11 U.S.C. § 542(a). Whiting Pools
reasoned that property of the estate “is intended to include in the estate any property made available to
the estate by other provisions of the Bankruptcy Code.” Id. at 205. However, in dicta, the Supreme
Court acknowledged that if ownership of the seized property was transferred pre-petition, 11 U.S.C.
§ 542(a) may not apply. Id. at 209. Thus, “[w]hile a determination of whether the debtor's interest is
property of the estate is a matter of federal law, the nature and existence of a debtor's interest in
property is determined in accordance with state law.” In re Robinson, 285 B.R. 732, 735
(Bankr.W.D.Okla. 2002) (citing In re Thomas, 883 F.2d 991, 995 (11th Cir.1989)).
Under New Mexico law, a seller under a real estate contract retains legal title to the real
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property until the purchaser makes all the payments due thereunder. See Southwest Land Inv., Inc. v.
Hubbart, 116 N.M. 742, 744, 867 P.2d 412, 414 (1993) (vendor under a real estate contract holds
“a legal interest in the title to the land, a reversionary interest in the property, and an equitable
personalty interest in the contract secured against third parties by a lien on the real estate.”) (citations
omitted); In re Anthony, 114 N.M. 95, 98, 835 P.2d 811, 814 (1992) (“A vendor under an executory
contract for the sale of realty holds bare legal title to the real estate until full payment of the purchase
price.”) (citing Marks v. City of Tucumcari, 93 N.M. 4, 5, 595 P.2d 1199, 1200 (1979)). The
purchaser holds an equitable interest in the real property during the term of the real estate contract until
all payments due under the real estate contract are made. Bank of Santa Fe v. Garcia, 102 N.M.
588, 590, 698 P.2d 458 (Ct.App. 1985), cert. den., 102 N.M. 613, 698 P.2d 886 (1985) (“Under a
real estate contract, the purchaser holds equitable title, while the seller retains legal title in trust until the
contract is paid.”); In re Beery, 295 B.R. 385, 395 (Bankr.D.N.M. 2003) (vendee under a real estate
contract holds equitable interest in real property). Then, once all payments due under the real estate
contract are made, upon the recording of the deed from the sellers to the purchasers, the legal and
equitable interests in the real property merge, giving the purchaser both legal and equitable title. In the
event of a purchaser’s default, a real estate contract allows the seller to terminate the contract by
declaring a default and recording a deed from the purchaser back to the seller, effectively cutting off the
purchaser’s equitable interest. See Welty v. Western Bank of Las Cruces, 106 N.M. 126, 127, 740
P.2d 120, 121 (1987) (real estate contract terminated at time deed is recorded); Beery, 295 B.R. at
395 (noting that vested equitable interest of vendee “cannot be divested . . . unless the Seller under
such contract moves to terminate it.”). Again the property interests merge, this time in the seller who
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now holds both legal and equitable interest in the property. In this case, pre-petition, Defendants, as
sellers under the real estate contract, purportedly terminated the real estate contract. As of the date of
the petition, Plaintiffs remained in possession of the property, but they held neither equitable nor legal
title to the property. Thus, no real property interest became property of the Plaintiffs’ bankruptcy
estate. Because the real property does not constitute property of the estate, Plaintiffs’ cannot maintain
turnover action to recover the real property under 11 U.S.C. § 542(a). See In re Williams, 91 B.R.
609, 611 (Bankr.M.D.Fla. 1988) (noting “that § 542 of the Bankruptcy Code was never designed to
apply to the Trustee’s attempt to obtain title to real property. Instead, § 542 was designed to allow the
Trustee to obtain possession of tangible personal property belonging to the Debtor, but that is in the
possession of another.”).
Plaintiffs’ allege in their Complaint that the termination of the real estate contract was
“wrongful.” That potential cause of action is an asset of the Plaintiffs’ bankruptcy estate, but a cause
of action is not subject to turnover under 11 U.S.C. § 542(a). 11 U.S.C. § 541; Whiting Pools, 462
U.S. at 205 n.9 (“‘The scope of this paragraph [§ 541(a)(1)] is broad. It includes all kinds of property,
including . . . causes of action . . .’”) (quoting H.R.Rep. No. 95-595, p. 367 (1977); S.Rep. No. 95-
989, p. 82 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5868, 6323). Whether the real estate
was wrongfully terminated can best be litigated in state court, especially under circumstances present
here, where Plaintiffs have already received a discharge in this no-asset Chapter 7 proceeding. Cf.
Lauria, 243 B.R. at 708 (noting that “turnover is not intended as a remedy to determine the disputed
rights of parties to property; rather it is intended as the remedy to obtain what is acknowledged to be
property of the estate.”) (citations omitted).
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For the foregoing reasons, IT IS HEREBY ORDERED, that the Motion to Dismiss is
GRANTED.
__________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
I certify that on the date shown on the attached
document verification, a true and correct copy of
the foregoing was either electronically transmitted,
faxed, delivered or mailed to the listed counsel
and/or parties.
R. “Trey” Arvizu III
Attorney for Plaintiffs
PO Box 1479
Las Cruces, NM 88004
Gary B. Ottinger
Attorney for Defendants
PO Box 1782
Albuquerque, NM 87103
________________________________
Patti G. Hennessy
Law Clerk
(505) 348-2545
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