Asset Technically Abandoned Despite Not Being Listed on Schedule B

Posted by NCBRC - May 8, 2019

The chapter 7 debtor’s cause of action was technically abandoned even though he failed to list it on Schedule B, where the trustee knew of the asset and indicated his intention to abandon it though he never sought a court order to that effect, and the trustee also listed all unadministered assets “known and unknown” as abandoned in his final report. Nasseri v. Tadayon (In re Tadayon), No. 18-1119 (B.A.P. 9th Cir. April 29, 2019) (unpublished).

When the debtor, Afshin Tadayon, filed for chapter 7 bankruptcy, he had a state court cause of action pending against Dr. Amir Nasseri. He did not list the cause of action in his Schedule B, but he did include it in his Statement of Financial Affairs. The trustee questioned the debtor about the asset during the 341(a) meeting of creditors. The debtor obtained his discharge. Dr. Nasseri was not notified of the bankruptcy, nor was he served with the trustee’s notice of intent to abandon the asset.

After Dr. Nasseri learned of the bankruptcy, he and the debtor stipulated in state court that Dr. Nasseri’s cross-claims would not violate the discharge injunction and that any liability the debtor might be found to have on those claims would be excepted from discharge. The debtor won in state court, obtaining a judgment against Dr. Nasseri of almost $550,000. Five years after Dr. Nasseri lost in the state court, and after Mr. Tadayon had spent $50,000 trying to collect the judgment from him, Dr. Nasseri moved to reopen the debtor’s chapter 7 case and have the judgment administered by the trustee. The bankruptcy court found that the chapter 7 trustee had abandoned the asset. Upon reconsideration, the court specified that even if the asset was not effectively abandoned under section 554(a), it was technically abandoned under section 554(c), and it was barred by the doctrine of laches under the court’s authority under section 554(d).

On appeal, the panel began with section 554(c) which provides that an asset is technically abandoned when: 1) it is properly scheduled, 2) not administered by the trustee, and 3) the case is closed. Dr. Nasseri argued that the asset was not properly scheduled. The panel reviewed several cases, including two from a Ninth Circuit Bankruptcy Appellate Panel, stating that, in order to be properly scheduled within the meaning of section 554(c), the asset must have been listed in Schedule B. The Tadayon panel found, however, that those cases typically involved misconduct or gamesmanship on the part of the debtor. There was no such gamesmanship in this case. In fact, the debtor discussed the cause of action with the trustee at the 341(a) meeting of creditors revealing both its potential value and the difficulties involved in collection. Furthermore, given the trustee’s clear intent to abandon the asset, as well as Dr. Nasseri’s actual knowledge that the debtor planned to pursue the state court action after closure of his bankruptcy case, the panel found the issue of including the asset on Schedule B “academic.” The panel concluded that under the facts of this case, the cause of action was technically abandoned by the chapter 7 trustee.

The panel went on to add that the bankruptcy court also had discretion under both sections 554(c) and (d) to rule the asset abandoned when the case was reopened. Though the bankruptcy court cited the doctrine of laches, the panel found that other equitable factors, including the trustee’s intent to abandon and Dr. Nasseri’s knowledge that the case against him would go forward post-discharge, supported the bankruptcy court’s decision. The panel rejected Dr. Nasseri’s argument that the bankruptcy court had to find the asset inconsequential or burdensome, finding that those requirements applied to the trustee under section 554(a), but there was no authority suggesting that the bankruptcy court was likewise constrained by those requirements in the exercise of its discretion under other paragraphs.

The panel affirmed.

Tadayon 9th BAP April 2019


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