SUZANNE H. BAUKNIGHT, Bankruptcy Judge.
Central to the dispute before the Court is a one-acre, unimproved lot that is property of the estate co-owned by the Trustee and Debtor-husband's parents, Benny and Ada East (the Easts).
Specifically, before the Court are the following: (1) Supplemental Report Amending Report of No Distribution (Supplemental Report) filed by the Chapter 7 Trustee, John P. Newton, Jr., on May 31, 2016 [Doc. 61], seeking to amend the Chapter 7 Trustee's Report of No Distribution (Report) filed on May 18, 2016 [Doc. 60], to "except/reserve" the estate's one-half interest in the Property; (2) the Objection to the Supplemental Report filed by the Easts on June 3, 2016 [Doc. 62]; and (3) the Motion to Compel Abandonment and Execution of Trustee's Deed (Motion to Compel) filed by the Easts on July 25, 2016 [Doc. 72], asking the Court to order the Trustee to abandon the Property as burdensome and of inconsequential value to the bankruptcy estate and requesting the Court to order the Trustee to execute a trustee's deed in favor of the Easts.
The parties identified the following issues for trial held on November 3, 2016:
[Doc. 84.] The record before the Court consists of fifteen exhibits entered into evidence and the testimony of Phillip James (an employee of Roane County GIS Services), Jane Long (a real estate broker and owner of Roane Realty in Rockwood, Tennessee),
On March 6, 1992, Benny East purchased the Property, which was titled in the name of Benny East and Debtor Dewayne East as tenants in common. [Tr. Ex. 3.] At that time, the Easts already owned the adjoining acres on which they lived. Mr. East intended that his son would eventually inherit the Easts' homestead property as well as the adjoining, jointly titled Property. The Easts accessed their land-locked property by an easement that had been deeded to Mr. East's parents in 1956. [Tr. Ex. 12.] The Easts paid to have a contractor construct a driveway over the easement, and the Easts have maintained the easement.
The Property is shown as parcel 61.02, and the Easts' homestead is parcel 92 (the orange rectangles and squares being the Easts' home and outbuildings). The easement that provides access to the Easts' property is highlighed in yellow and represented by the blue dotted line shown on the tax map across the Property and parcel 92.
Mr. East testified that, after owning the Property with his son for twenty years, he realized that he could receive a "greenbelt" tax break if the Property were titled the same as his homestead property. Thus, on March 8, 2012, less than five months before Debtors filed this case, Debtor Dewayne East quitclaimed his ownership in the Property to his parents. [Tr. Ex. 4.]
Debtors commenced this Chapter 7 bankruptcy case on August 1, 2012. Pursuant to his statutory duties, the Trustee filed an adversary proceeding against the Easts on May 8, 2014, seeking to avoid the transfer under 11 U.S.C. §§ 547(a) or 548(a)(1)(A) or (B). After execution by the Easts of a quitclaim deed conveying a one-half interest in the Property to the Trustee on August 1, 2014, the Trustee dismissed the adversary proceeding on August 11, 2014.
Also in August 2014, Roane County reviewed Benny East Road, to which the easement connects, and determined to adjust the length of Benny East Road on the County's road list from a length of .9 mile to .4 mile.
According to the Trustee, after efforts to gain the Easts' approval to sell the Property failed, he was required to file a second adversary proceeding on September 22, 2014, seeking approval of a sale of the Property under 11 U.S.C. § 363(h). The Trustee obtained a default judgment against the Easts entered on February 6, 2015, which authorizes the Trustee to sell the Property free and clear of the Easts' interests subject to payment of 50% of the proceeds to the Easts. [Tr. Ex. 19].
On March 20, 2015, the Executive Director of the Roane County Emergency Communications District E-911 issued a letter "to whom it may concern" setting forth the parameters of Benny East Road as starting "at the intersection of Spring City Hwy. also known as US Hwy 27, and end[ing] at the intersection [sic] Stanley Lane." [Tri. Ex. 11, Ex. F.] The Easts' counsel sent the letter to the Trustee. Six days later, the Roane County Road Superintendent wrote a letter "to whom it may concern," saying:
[Tr. Ex. 11, Ex. G.] The Superintendent's letter was also sent by the Easts' counsel to the Trustee.
The Trustee filed his Report on May 18, 2016. After he was asked by counsel for the Easts to execute a trustee's quitclaim deed transferring the estate's interest in the Property to the Easts, the Trustee realized that the Report had been improperly filed without reserving the Property as an asset of the estate. The Trustee explained that the error was caused by the software for filing the reports. To remedy the error, on May 31, 2016, i.e., less than two weeks after filing the initial Report, the Trustee filed his Supplemental Report, stating the following:
[Doc. 61; Tr. Ex. 15].
The Easts objected to the Supplemental Report on June 3, 2016, and following an initial hearing on the objection, moved to compel abandonment on July 25, 2016.
Although the 1956 easement owned by the Easts is of record in Roane County, the Trustee's on-line searches did not discover it. Nor, apparently, did the auctioneer employed by the Trustee discover the easement. The Trustee testified that he was unaware of the easement until ten days before trial of this matter, when the parties exchanged proposed exhibits. Thus, the Trustee's desire to market and sell the Property before discovery of the easement was affected by the perceived lack of access to and the estate's co-ownership of the Property with the Easts. The Trustee sought to reserve the Property, however, because he believed that the issue might be resolvable within the next few years.
Simply, by the Supplemental Report, the Trustee seeks to reserve the estate's interest in the Property, which he asserts has a fair market value between $9,000.00 and $20,000.00, in the event that access can be established. The Trustee notes that a value of $9,000.00 is shown on the August 2014 quitclaim deed (transferring one-half interest in the Property) as noted by the Roane County Register of Deeds for purposes of transfer tax determination.
Through their Objection to the Supplemental Report, the Easts disagree that the Trustee has the right to reserve or except the Property from the Report by the Supplemental Report. Through their Motion to Compel, the Easts seek abandonment of the Property by the estate, based on the fact that it is land-locked and because of the Trustee's failure to market and sell the Property during the last two years.
When Debtors commenced their case, their bankruptcy estate, consisting of "all legal or equitable interests of the debtor[s] in property as of the commencement of the case[,]" was created. 11 U.S.C. § 541(a). Under 11 U.S.C. §§ 323(a) and 704(a)(1), the Trustee became the representative of Debtors' bankruptcy estate and succeeded to all interests in property of the estate. He also inherited the authority to use property of the estate for the best interests of creditors, including the statutory responsibility to abandon property as follows:
11 U.S.C. § 554.
The threshold issue is whether the Easts are parties in interest and, therefore, possess standing to request abandonment under § 554(b). Based on the record, the Court finds that the Easts do possess standing as parties in interest to oppose the Supplemental Report and to seek abandonment of the Property under § 554(b).
Although the traditional constitutional requirements represent the mandatory minimum requirements for a party to have standing, Congress can "modify or even abrogate prudential standing requirements, thus extending standing to the full extent permitted by Article III." St. Paul Fire & Marine Ins. Co., 579 F.3d 533, 539 (5th Cir. 2009) (quotation omitted). In Rule 6007 of the Federal Rules of Bankruptcy Procedure, Congress extended standing to the full extent permitted by Article III to allow any "party-in-interest" to object to a proposed abandonment of property. See Newport Acquisition Co. No. 1, LLC v. Schiro (In re C-Power Prods., Inc.), 230 B.R. 800, 804 (Bankr. N.D. Tex. 1998). Therefore, in lieu of prudential "bankruptcy standing" requirements, the Easts must satisfy the statutory "party-in-interest" requirement.
The term "party-in-interest" appears in many different sections of the Bankruptcy Code but is not defined in 11 U.S.C. § 101. The legislative history suggests that the term intentionally was omitted from the list of definitions in § 101 to allow some flexibility in its use. See In re N. Am. Oil & Gas, Inc., 130 B.R. 473, 479 (Bankr. W.D. Tex. 1990), abrogated on other grounds by Pritchard v. U.S. Trustee (In re England), 153 F.3d 232 (5th Cir. 1998). Specifically, the Bankruptcy Appellate Panel of the Sixth Circuit Court of Appeals has broadly interpreted the term to include any "`party [that] has a "sufficient stake" in the outcome of that proceeding, which can include having a pecuniary interest directly affected by the bankruptcy proceeding.'" In re Pertuset, No. 12-8014, 485 B.R. 478, 2012 WL 6598444, at *10 (B.A.P. 6th Cir. Dec. 18, 2012) (quoting Church Mut. Ins. Co. v. Am. Home Assurance Co. (In re Heating Oil Partners, LP), 422 F. App'x 15, 17 (2d Cir. 2011)); see also Khan v. Regions Bank (In re Khan), No. 10-36155, Adv. No. 11-3186, 2011 WL 6179941, at *4 (Bankr. E.D. Tenn. Dec. 13, 2011). Courts, including many in the Sixth Circuit, have found that the term "party in interest" includes the following:
In re RnD Eng'g, LLC, 556 B.R. 303, 311 (Bankr. E.D. Mich. 2016).
Without question, the Easts have an interest in the Property, thus meeting at a minimum the second and fourth categories of persons qualifying as parties in interest. Because they have "a clear interest in the real property," the Easts are parties in interest authorized to seek abandonment as contemplated by § 554. See, e.g., In re Crouch, 80 B.R. 364, 366 (Bankr. W.D. Va. 1987).
The Easts argue that because no party in interest objected within thirty days to the Report filed on May 18, 2016, the Trustee is bound by the presumption that an estate has been fully administered as provided by Rule 5009(a) of the Federal Rules of Bankruptcy Procedure. While the Court agrees that a presumption arises under the terms of Rule 5009(a), the Court disagrees with the Easts' argument for either of the following possible interpretations of the effect of the Supplemental Report. First, the Supplemental Report filed by the Trustee constituted an amendment of the Report, well within the thirty-day objection period before the presumption could arise. Alternatively, the Supplemental Report constitutes a rebuttal of the Rule 5009(a) presumption. See In re Schoenewerk, 304 B.R. 59, 64 (Bankr. E.D.N.Y. 2003) (holding that the Rule 5009(a) presumption was rebutted when the trustee withdrew his no-asset report to administer the debtors' residence when the debtors listed the property for sale at substantially well in excess of the scheduled value). Here, the Supplemental Report, which was filed on May 31, 2016, clearly was filed within the thirty days provided by Rule 5009(a), and it expressly amends the Report and states that the Property "has NOT been fully administered." [Doc. 61.]
The Easts also argue that the Trustee has no authority to file a no-asset report that excepts or reserves an asset of the Estate. Such an argument flies in the face of the Code. Section 554(d)
In order to prevail in their Motion to Compel, the Easts are required to prove, by a preponderance of the evidence, that the Property is burdensome to the estate or of inconsequential value. See 11 U.S.C. § 554(b); Lancer Ins. Co. v. Guru Global Logistic, LLC (In re Guru Global Logistic, LLC), 557 B.R. 842, 844 (Bankr. W.D. Pa. 2016). "An order compelling abandonment is the exception, not the rule [and abandonment] . . . should only be compelled in order to help the creditors by assuring some benefit in the administration of each asset." Morgan v. K.C. Mach. & Tool Co. (In re K.C. Mach. & Tool Co.), 816 F.2d 238, 246 (6th Cir. 1987). When deciding whether to order abandonment, a court generally "will defer to a trustee's decision not to abandon property provided it finds that the trustee made a business judgment, in good faith, upon some reasonable basis, and within the scope of [his] authority." Guru Global Logistic, LLC, 557 B.R. at 845 (citing In re Slack, 290 B.R. 282, 284 (Bankr. D.N.J. 2003)). Nevertheless, as the party opposing abandonment, the Trustee "must show some likely benefit to the estate; mere speculation about possible scenarios in which there might be a benefit is not sufficient." Rajala v. Liberty Bank (In re Buerge), No. 11-20325; Adv. No. 13-6015, 2013 WL 5656204, at *2 (Bankr. D. Kan. Oct. 15, 2013) (quotation omitted); see also Kaler v. Nelson (In re Nelson), 251 B.R. 857, 860 (B.A.P. 8th Cir. 2000) ("The court need not consider speculative factors when determining whether abandonment is appropriate under Section 554(b) of the Bankruptcy Code."). Accordingly, the question that must be answered is "whether there is a reason that the estate's interest in the property should be preserved or, instead, whether the property is so worthless or burdensome to the estate that it should be removed therefrom." In re Hodges, No. 06-33078, 2013 WL 1755483, at *2 (Bankr. E.D. Tenn. Apr. 24, 2013) (quoting K.C. Mach. & Tool Co., 816 F.2d at 246 (citations omitted)).
The Court finds that the Easts have not met their burden of proof on this question. No evidence was presented by the Easts as to the value of the Property. The Trustee, however, presented evidence that the value reported to Roane County pursuant to Tennessee Code Annotated § 67-4-409 was $9,000.00. [Tr. Ex. 5].
Instead, the evidence established the Trustee's recent discovery of the easement (curiously not disclosed by the Easts to the Trustee given their ongoing efforts to convince him that the Property is inaccessible
In summary, for the reasons stated herein, the Objection to Trustee's Supplemental Report Amending Report of No Distribution is OVERRULED, and the Motion to Compel Abandonment and Execution of Trustee's Deed is DENIED. An order consistent with this Memorandum will be entered.