9th Circuit BAP Finds Disclosure of Debtor’s Claim in the SOFA Sufficient for Abandonment (Subtitle: BAP Surveys Cases Nationally on Disclosure and Abandonment)

Posted by NCBRC - May 2, 2019

In an unpublished opinion entered on April 29, 2019, the 9th Circuit Bankruptcy Appellate Panel addressed the thorny issue whether a debtor’s disclosure of an asset in the SOFA but not in the Schedules of Assets and Liabilities precludes abandonment under 11 U.S.C. § 554(c).

Prior to filing for bankruptcy, the Debtor and his sister, lent money ($696,704.42) to Dr. Nasseri (the Doctor) which was secured by the Doctor’s real and personal property. The Debtor and his sister filed a state court collection action against the Doctor and the Doctor filed a counterclaim.

The Debtor then filed a chapter 7 bankruptcy. He did not list the state court action in his schedule B but did list it in the SOFA identifying the court, case name and number, describing the nature of the suit as “Title to Property” and noting that the case was “open.” The Debtor never listed the Doctor’s counterclaim in his schedules or SOFA nor did he list the Doctor as a creditor. The Doctor did not receive formal notice of Debtor’s bankruptcy filing.

At the 341 meeting, the Trustee questioned the Debtor about the state court action. The Debtor state he told the trustee that the case had not yet been tried and that the Doctor was living in Dubai. The Debtor obtained a discharge on February 11, 2011. On September 29, 2011, the trustee filed a notice of intent to specifically abandon the state court action. The Doctor was not served with the notice.

In April of 2012, when the Doctor learned of the bankruptcy, the parties filed a stipulation and order that agreed that the Doctor’s counterclaim would not violation the discharge and any debts owed to the Doctor (on account of his counterclaim) would not be discharged. Thereafter the trustee filed his final report. The bankruptcy was closed on May 4, 2012.

Subsequently, the Debtor and his sister continued the lawsuit against the Doctor and won a judgment against him in the amount of $547,173.44. The Doctor’s counterclaim was not successful. The Doctor argued for a directed verdict arguing Debtor lacked standing as the asset had never been abandoned under 11 U.S.C. §§ 554(a) or (c) which was denied by the state court.

The Debtor then attempted to collect the debt from the Doctor. He employed multiple attorneys both locally and in Dubai (where the Doctor lived) and twice bringing the matter before the Supreme Court in Dubai to have the Judgment domesticated there.

In 2017, the Doctor moved to reopen the Debtor’s bankruptcy hoping to come to an agreement with the trustee to compromise or set regular payments on the judgment amount. The bankruptcy court reopened the case and appointed a new trustee. The Debtor then moved for an order of abandonment of the state court action and to re-close his case.  The court granted Debtor’s motion.

The issues before the BAP were as follows:

  • Was the state court action sufficiently scheduled under 11 U.S.C. § 541(a)(1) so that the trustee could abandon it? Further, does an asset need to be formally listed in schedule B to be disclosed?
  • Does laches apply to the Doctor’s assertion that the asset was not disclosed and therefore still part of the bankruptcy estate?

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