Roland nmn Dice

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF MISSOURI
In re: )
)
ROLAND DICE ) Case No. 03-47478
)
Debtor. )
)
ROBERT A. PUMMILL )
)
Trustee )
)
v. ) Adversary No. 04-5013
)
ROLAND DICE )
)
Defendant. )
MEMORANDUM OPINION
This matter comes before the Court on remand from the United States District Court for the
Western District of Missouri for entry of an order that the Chapter 7 trustee (“Trustee”) is not
presently entitled to collect the rents from Roland Dice’s (“Debtor”) investment properties after the
Trustee had abandoned them. The parties now dispute whether the Trustee is entitled to collect those
rents that accrued between the date the Debtor filed his Chapter 7 bankruptcy and the date that the
Trustee abandoned the Debtor’s investment properties.
The Court held a hearing in this matter on August 31, 2004, in Kansas City, Missouri, at which
time the Court took the matter under advisement. After considering the arguments of the parties, the
undisputed facts, and the relevant law, the Court is prepared to find that the Trustee is entitled to the
post-petition, pre-abandonment rents.
I. BACKGROUND
The Debtor owns ten rental properties in Clinton, Missouri, that are subject to a security
interest in favor of St. Clair County State Bank (“Bank”) in the approximate principal amount of
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$238,612.00. Although the Debtor describes himself as a self-employed construction worker, he
claims not to make any money at that profession – his sole source of income is about $4,895.00 per
month generated by his ten rental properties.
After the Debtor filed his Chapter 7 bankruptcy petition on December 1, 2003, the Trustee
requested that the Debtor turn over all rents from his properties because those rents were property of
his bankruptcy estate under 11 U.S.C. § 541(a). The Debtor refused, and countered with a motion to
enjoin the Trustee from collecting those rents on the basis that the Debtor had equity in the properties,
the properties were listed for sale, the rents comprised a majority of the Debtor’s income, the Debtor
needed a portion of the rents to make necessary repairs, and the Trustee had not sought authorization
from the Court to operate the Debtor’s business. The Trustee then filed a motion to compel the Debtor
to turn over those rents.
Meanwhile, the Bank filed a motion to lift the automatic stay so that it could proceed to
foreclose on the Debtor’s rental properties, arguing, inter alia, that the Debtor was not maintaining
insurance on the properties – and was not paying the taxes – or the mortgages. The Trustee also filed
a notice of abandonment on the Debtor’s rental properties for the stated reasons that the Court had
already granted the Bank the right to proceed to foreclose in a previously filed bankruptcy of the
Debtor (later dismissed) and because the Trustee did not believe the Debtor had any equity in the
properties over the Bank’s secured lien. The Debtor objected to the Trustee’s proposed abandonment.
On April 2, 2004, the Court granted the Bank relief from the automatic stay to proceed to
foreclosure on the Debtor’s rental properties, and on April 8, 2004, the Court entered three orders
which approved the Trustee’s abandonment of the Debtor’s rental properties, granted the Trustee’s
motion to compel turnover of the rents from those properties, and denied the Debtor’s motion to enjoin
the Trustee from collecting those rents. The Debtor timely appealed the orders of the Court granting
the Trustee’s motion to compel and denying the Debtor’s motion for an injunction, arguing on appeal
that once the Trustee abandoned the Debtor’s rental properties the Trustee also abandoned any claim
of the bankruptcy estate to the rents generated from them – an issue not ruled on by this Court. Before
the district court rendered its decision, the Trustee filed an adversary complaint against the Debtor
seeking to deny the Debtor’s discharge on the grounds that the Debtor had not complied with the order
of this Court to turn over the rents from the Debtor’s investment properties.
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II. DISCUSSION
The district court ruled that the Trustee did not have any present right to collect rents from the
Debtor’s rental properties because once this Court entered an order approving the Trustee’s notice
of abandonment, the bankruptcy estate was divested of all the estate’s interest in the properties,
including the Trustee’s present claim for rents. The district court further stated that this Court “has
not had the opportunity to rule that the Trustee is no longer entitled to collect rents from the properties
post-abandonment,” and remanded the case for that determination. No party disputes the district
court’s determination that the Trustee does not have any right to collect rents after he abandoned the
rental properties back to the Debtor, but the parties do dispute which one is entitled to about
$8,000.00 in rents that accrued between the date that the Debtor filed his Chapter 7 petition and the
date that the Trustee abandoned the rental properties.
Generally, there are four phases to a claim of ownership in abandonment proceedings. First,
it is axiomatic that before filing a bankruptcy petition, debtors are vested with their own property and
are entitled to the proceeds therefrom. Second, on filing a petition for bankruptcy, a bankruptcy estate
is created, which is a separate entity from the debtor and which is comprised of, inter alia, “all legal
and equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. §
541(a)(1). The bankruptcy estate specifically includes rents derived from property of the estate, §
541(a)(6), and “[a]ny interest in property that the estate acquires after the commencement of the case.”
§ 541(a)(7).
Third, as noted by the district court, after a trustee in bankruptcy abandons property of the
estate under Fed. R. Bankr. P. 6007, that abandonment divests the estate of all interest in the
abandoned property. Dice v. Pummill (In re Dice), No. 04-359-CV-W-DW (W.D. Mo. July 8, 2004)
(citing 5 Collier on Bankruptcy ¶ 554.02[3] (15th ed. 2004). Generally, “when property of the
bankrupt is abandoned, the title ‘reverts to the bankrupt, nunc pro tunc, so that he is treated as having
owned it continuously.’” Morlan v. Universal Guaranty Life Insurance Co., 298 F.3d 609, 617 (7th
Cir. 2002) (quoting Wallace v. Lawrence Warehouse Co., 338 F.2d 392, 394 n. 1 (9th Cir. 1964)),
cert denied, 537 U.S. 1160; 123 S. Ct. 968; 154 L. Ed. 2d 893 (2003); Dewsnup v. Timm (In re
Dewsnup), 908 F.2d 588, 590 (10th Cir. 1990) (noting that “[p]roperty abandoned under this section
ceases to be part of the estate” and “reverts to the debtor and stands as if no bankruptcy petition was
filed,” meaning that “whoever had the possessory right to the property at the filing of the bankruptcy
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again acquires that right.”), aff’d 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992).
The fourth phase, at issue here, is the status of property proceeds that accrue after a debtor
files a petition in bankruptcy and before a trustee acts to abandon that property.
The Debtor’s argument that the rents from the property of the estate were abandoned by the
Trustee when the Trustee abandoned the underlying real property is a non sequitur. Rents received
in the interim period – while the rental properties were part of the bankruptcy estate – also became
property of the bankruptcy estate under the plain language of 11 U.S.C. § 541(a)(6) and (7). Rents are
not real property imbued with the same characteristics of the immovable from which they were
derived; rather, rents derived from real property assets of the bankruptcy estate are not themselves
immovables, the taking of which would diminish the substance of the realty, but they are corporal
movables – at least by anticipation – the civil fruits of which belong to the owner. In this case, the
rents that accrued during the period that the Debtor’s rental units were property of the estate belong
to the estate and the rents, unlike the real property, were not abandoned by the Trustee. Accordingly,
the Debtor is still subject to liability on the Trustee’s motion to compel turnover of the rents that
accrued between the date of the filing of the petition and the date that the Trustee abandoned the real
property back to the Debtor.
This opinion constitutes the Court’s findings of fact and conclusions of law. A separate order
shall be entered pursuant to Fed. R. Bankr. P. 9021.
ENTERED this 23rd day of September 2004.
/s/ Jerry W. Venters
HONORABLE JERRY W. VENTERS
UNITED STATES BANKRUPTCY JUDGE
A copy of the foregoing was served
electronically or conventionally to:
Bruce E. Strauss
Robert A. Pummill
Gary W. Smith
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