In re: Anthony Vincent Leonis

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: June 8, 2017
• Docket: EC-16-1254-JuTaB
• Status: Unpublished

Opinion

FILED JUN 08 2017 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. EC-16-1254-JuTaB ) 6 ANTHONY VINCENT LEONIS, ) Bk. No. 1:12-bk-15487 ) 7 Debtor. ) ______________________________) 8 JAMES CIECIORKA; MARY JEAN ) CIECIORKA, ) 9 ) Appellants, ) 10 v. ) M E M O R A N D U M* ) 11 RANDELL PARKER, Chapter 7 ) Trustee; ANTHONY VINCENT ) 12 LEONIS; UNITED STATES TRUSTEE,) ) 13 Appellees. ) ______________________________) 14 Argued on March 23, 2017 15 at Sacramento, California 16 Submitted on June 1, 2017 17 Filed - June 8, 2017 18 Appeal from the United States Bankruptcy Court for the Eastern District of California 19 Honorable Rene Lastreto, II, Bankruptcy Judge, Presiding 20 _____________________________________ Appearances: James L. Pagano of Pagano & Kass, APC argued for 21 appellants James Cieciorka and Mary Jean Cieciorka; Trudi G. Manfredo argued for appellee 22 Randell Parker, Chapter 7 Trustee. _____________________________________ 23 Before: JURY, TAYLOR, and BRAND, Bankruptcy Judges. 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1.

-1- 1 Judgment creditors, James Cieciorka and Mary Jean Cieciorka 2 (collectively, the Cieciorkas), appeal from the bankruptcy 3 court’s order overruling their objection to the “Chapter 7 4 Trustee’s Final Account and Distribution Report Certification 5 That the Estate Has Been Fully Administered and Application to 6 Be Discharged” (Final Account) filed by Randell Parker, the 7 chapter 7 trustee.1 For the reasons explained below, we AFFIRM. 8 I. FACTS 9 Anthony Vincent Leonis (Debtor) filed a chapter 7 petition 10 on June 20, 2012. On the same date, Mr. Parker was appointed 11 the trustee (Trustee). 12 In schedule A, Debtor listed his interest in four 13 properties, including his undivided one-half interest in a 14 parcel located in Livermore, California (Livermore Parcel)2 with 15 a value of $32,000. In schedule C, Debtor claimed an exemption 16 in the Livermore Parcel under Cal. Civ. Proc. Code (CCP) 17 § 703.140(b)(5) (the wildcard exemption) in the amount of 18 $12,860.43. In schedule D, Debtor listed the Cieciorkas3 as 19 judgment lien creditors owed $433,000. The Cieciorkas’ lien 20 21 1 Unless otherwise indicated, all chapter and section 22 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, “Rule” references are to the Federal Rules of Bankruptcy 23 Procedure, and “Civil Rule” references are to the Federal Rules of Civil Procedure. 24 2 This property is also referred to as the “Newman” property 25 by Trustee and his counsel. In its Memorandum Decision regarding 26 the award of Trustee’s counsel’s fees, the court refers to the property as the Livermore Parcel. The Newman property is the 27 same as the Livermore Parcel. 28 3 The Cieciorkas are Debtor’s relatives.

-2- 1 encumbered the Livermore Parcel. 2 Trustee filed a motion to sell the Livermore Parcel. To 3 effectuate the sale, Trustee entered into an agreement with the 4 co-owners of the property who originally demanded that the 5 property be partitioned. Trustee also entered into a 6 stipulation with the Cieciorkas who agreed to release their 7 judicial lien against the property in the event of a sale. 8 Ultimately, there were four bidders at the sale, including the 9 Cieciorkas. They were declared the highest bidder and purchased 10 Debtor’s interest in the Livermore Parcel for $215,000 in March 11 2015. 12 Meanwhile, Trustee continued his investigation of other 13 possible nonexempt assets. Trustee learned that Debtor had made 14 a $15,000 withdrawal from his Bank of America (BofA) account 15 prepetition and requested an accounting. Debtor failed to 16 provide documentation or an accounting regarding the funds. 17 Accordingly, on May 21, 2015, Trustee filed an Application for 18 2004 Examination, seeking to examine Debtor and for production 19 of documents relating to the funds. The bankruptcy court 20 granted the application on May 22, 2015. 21 Debtor’s 2004 exam was held on August 12, 2015. After 22 conducting the exam, Trustee concluded that Debtor had provided 23 sufficient documentation and testimony accounting for the 24 $15,000 and was satisfied that the money had been spent for 25 proper prepetition purposes. However, during the exam Trustee 26 discovered an undisclosed asset in the form of accounts 27 receivable (A/R). Trustee made a demand for turnover of the 28 A/R.

-3- 1 At that time, Trustee was holding Debtor’s exempt funds 2 from the sale of the Livermore Parcel in the amount of 3 $12,860.43. Debtor and Trustee agreed that Debtor would “trade” 4 his exemption in the Livermore Parcel for an exemption in the 5 A/R which he had already received. On September 15, 2015, 6 Debtor amended schedule B to list the A/R in the amount of 7 $12,860.43, and amended schedule C to claim an exemption under 8 CCP § 703.140(b)(5) for the same amount. In schedule C, Debtor 9 deleted his exemption in the Livermore Parcel for $12,860.43. 10 Trustee and his counsel, Trudi G. Manfredo, filed final fee 11 applications. The Cieciorkas objected to about 10% of the fees 12 requested by Ms. Manfredo as unnecessary or not adequately 13 explained, including fees incurred for Debtor’s 2004 exam. 14 They also objected to Trustee’s compensation, contending that 15 the itemization of his expenses was inadequate and that he 16 overstated his commission. 17 On January 7, 2016, the bankruptcy court heard the matters. 18 The court allowed Trustee’s fees and expenses with the exception 19 of a clerical error about postage. In response to the 20 Cieciorkas’ objection to her fees for conducting the 2004 exam, 21 Ms. Manfredo explained how she discovered the A/R due to 22 Debtor’s testimony and production of documents during that exam. 23 She told the court about Trustee’s demand for turnover of the 24 A/R and explained that Debtor and Trustee reached an agreement 25 whereby Debtor would amend his schedule C to protect the A/R and 26 release his other exemption in the Livermore Parcel. The 27 bankruptcy court took Ms. Manfredo’s application for 28 compensation under submission.

-4- 1 In a January 28, 2016 Memorandum Decision, the bankruptcy 2 court found that the fees incurred by Ms. Manfredo for the 2004 3 exam were necessary and compensable. The bankruptcy court noted 4 that after document production and testimony from Debtor, 5 Trustee discovered the A/R and reached an agreement with Debtor 6 whereby approximately $13,000 was added to the chapter 7 estate. 7 The bankruptcy court allowed her compensation as requested with 8 the exception of one duplicate entry for $442.50. The court 9 entered an order awarding her $30,334.50 in fees and $682.83 in 10 expenses. 11 In preparation for closing the case, pursuant to 28 C.F.R. 12 § 58.7(a), Trustee submitted his final report (TFR) to the 13 United States Trustee (U.S. Trustee). 14 After the TFR was certified by the U.S. Trustee, in 15 compliance with 28 C.F.R. § 58.7(b), the TFR was filed in the 16 bankruptcy court on February 5, 2016. The court served Notice 17 of Trustee’s Final Report And Applications For Compensation And 18 Deadline To Object (NFR). The TFR included an outline of 19 intended, rather than completed, distributions of estate assets. 20 It showed the A/R as item 23, noting that it was unscheduled and 21 had a net value of $10,627.07. In describing the asset, Trustee 22 showed that Debtor provided proof that he received payment on 23 the invoices postpetition and that Debtor had exempted the 24 funds. Trustee indicated that $0.00 was received by the estate 25 and that the asset was fully administered. 26 Although there is much discussion regarding item 23 in the 27 record, this asset is not at issue in this appeal. Instead, it 28 is item 24 which shows that Debtor withdrew $15,000 from his

-5- 1 “BofA account” prepetition. The nonexempt asset was listed as 2 unscheduled, Trustee showed that $0.00 was received by the 3 estate and indicated that the asset was fully administered. 4 Finally, the TFR showed the Cieciorkas with an allowed 5 unsecured claim of $543,523.44 and indicated that distribution 6 on the claim was $159,578.57. 7 On February 24, 2016, an amended TFR along with an amended 8 NFR were filed in the bankruptcy court. Apparently the 9 amendment was necessary to adjust distributions due to errors in 10 Trustee’s application for compensation. Trustee had made a 11 clerical error for the requested postage which resulted in an 12 overcharge of $123.48, and another error overstated Trustee’s 13 commission by $975. Due to the corrections, the amended TFR 14 showed that the Cieciorkas would receive a distribution of 15 $160,880.70 on their allowed unsecured claim. 16 On February 29, 2016, the bankruptcy court entered an order 17 awarding Trustee compensation of $16,633.89 and expenses of 18 $595.40. 19 On May 27, 2016, Trustee’s Final Account was filed and the 20 bankruptcy court served a notice giving parties in interest 21 thirty days to object. In the Final Account, Trustee certified 22 that administration of the estate was complete as the 23 distributions outlined in the amended TFR had been made. On 24 June 23, 2016, the Cieciorkas objected to the Final Account. 25 They argued, among other things, that the Final Account did not 26 show that Trustee had fully administered the nonexempt $15,000 27 cash withdrawal from the BofA account because the estate had 28 received no value. The Cieciorkas complained that there was no

-6- 1 explanation why the $15,000 asset was not administered when it 2 was included in the estate and apparently would be abandoned. 3 On August 4, 2016, the bankruptcy court held a hearing on 4 the matter. The Cieciorkas withdrew most of their objections at 5 the hearing except as to Trustee’s listing of the $15,000 cash 6 withdrawal. They expressed confusion over Trustee’s inclusion 7 of the $15,000 withdrawal as an “asset” of the estate when the 8 estate received no value. The bankruptcy court overruled their 9 objection, adopting its tentative ruling set forth in Civil 10 Minutes as its final ruling. 11 On August 18, 2016, the Cieciorkas filed a notice of appeal 12 from the bankruptcy court’s ruling. 13 On October 7, 2016, the Clerk’s office sent out a notice 14 notifying the Cieciorkas that the order appealed was never 15 entered on the bankruptcy court’s docket and therefore the 16 appeal was subject to dismissal for lack of jurisdiction. 17 On October 13, 2016, the bankruptcy court entered a civil 18 minute order overruling the Cieciorkas objection to the Final 19 Account. This order resolved the jurisdictional issue. 20 II. JURISDICTION 21 The bankruptcy court had jurisdiction over this proceeding 22 under 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction 23 under 28 U.S.C. § 158. 24 III. ISSUE 25 Did the bankruptcy court abuse its discretion by overruling 26 the Cieciorkas’ objection to Trustee’s Final Account? 27 IV. STANDARDS OF REVIEW 28 We review the bankruptcy court’s overruling an objection to

-7- 1 a trustee’s final report and account for abuse of discretion. 2 See, e.g., Flores v. Salven (In re DDJ, Inc.), 2015 WL 3451555 3 (9th Cir. BAP May 29, 2015); Corbett v. Salven (In re Corbett), 4 2014 WL 1647393 (9th Cir. BAP April 24, 2014). 5 Under the abuse of discretion standard, we first “determine 6 de novo whether the [bankruptcy] court identified the correct 7 legal rule to apply to the relief requested.” United States v. 8 Hinkson, 585 F.3d 1247, 1261-62 & n. 21 (9th Cir. 2009) (en 9 banc). If the bankruptcy court identified the correct legal 10 rule, we then determine under the clearly erroneous standard 11 whether its factual findings and its application of the facts to 12 the relevant law were: “(1) illogical, (2) implausible, or 13 (3) without support in inferences that may be drawn from the 14 facts in the record.” Id. 15 We may affirm the bankruptcy court’s orders on any basis 16 supported by the record. See ASARCO, LLC v. Union Pac. R. Co., 17 765 F.3d 999, 1004 (9th Cir. 2014). 18 V. DISCUSSION 19 The gravamen of this appeal is based on the Cieciorkas’ 20 belief that Trustee incorrectly described his disposition of the 21 $15,000 BofA withdrawal or erred by listing it as an asset of 22 the estate which was fully administered. They contend the asset 23 was not fully administered as shown in the final reports or 24 Final Account because the estate received no part of the 25 nonexempt funds. According to the Cieciorkas, there is no 26 evidence of what Trustee’s investigation of the $15,000 27 withdrawal consisted of, what he found, and why he concluded, as 28 he claims to have, that Debtor spent the money appropriately

-8- 1 pre-petition and thus the $15,000 never came into the estate. 2 As discussed below, these arguments have no merit. 3 A. The Final Report And Account And Rule 5009 4 One of the trustee’s duties under § 704(9) is to file a 5 final report and a final account of the administration of the 6 estate with the bankruptcy court. The purpose of the final 7 report and account, and the hearings in connection with an 8 objection from the U.S. Trustee or a party in interest, is to 9 determine whether a given estate has been fully administered and 10 whether fees and expenses should be allowed to the chapter 7 11 trustee. See § 704(9); Lopez–Stubbe v. Rodriguez–Estrada 12 (In re San Juan Hotel Corp.), 847 F.2d 931, 939 (1st Cir. 1988) 13 (“The very purpose of a final accounting is to insure that 14 trustees disclose and be held accountable for their handling of 15 the estate.”). 16 The notice requirements for a chapter 7 trustee’s final 17 report and final account are dictated by Rules 5009 and 18 2002(f)(8). Rule 5009(a) states: 19 If in a chapter 7 . . . case the trustee has filed a final report and a final account and has certified 20 that the estate has been fully administered, and if within 30 days no objection has been filed by the 21 United States trustee or a party in interest, there shall be a presumption that the estate has been fully 22 administered. 23 Although Rule 5009 does not expressly require notice, the 24 requirement of notice has been inferred. In re Avery, 272 B.R. 25 718, 728 (Bankr. E.D. Cal. 2002) (“[I]f parties in interest have 26 the right to object to the final report, someone must serve them 27 with it.”). Under Rule 2002(f)(8), a “summary” of the trustee’s 28 final report in a chapter 7 case is required to be served on the

-9- 1 debtor and creditors “if the net proceeds realized exceed 2 $1,500.” Here, the net proceeds realized exceeded $1,500. The 3 Cieciorkas were served with the TFR and Final Account. 4 Rule 5009 has been described as nothing more than a 5 procedural rule for case closing: 6 To see this Rule in context, one has to step back and understand that one of the reforms under the 7 Bankruptcy Code, as enacted in 1978, was intended to relieve bankruptcy judges of the heavy burden of case 8 administration in its most routine and tedious bureaucratic aspects, including the actual issuance of 9 orders closing chapter 7 no-asset cases that comprise over 90% of the chapter 7 cases filed by natural 10 persons. Most case administrative functions were ultimately reallocated to an administrative agency in 11 the executive branch of the federal government, to wit, the Executive Office of the United States 12 Trustees lodged in the U.S. Department of Justice and reporting ultimately to the U.S. Attorney General. 13 One of the central functions of the Executive Office of the United States Trustee is to appoint and 14 supervise the private panel of chapter 7 trustees. As part of the process of supervising chapter 7 cases, it 15 became the primary administrative responsibility of the United States trustee to make certain that the 16 panel trustees moved their assigned cases to an expedited closing. The function, however, of actual 17 closing a case remained vested with the Clerk of the Court. Since the filing of a final report in a 18 no-asset case still requires some sort of administrative review by the United States trustee 19 this worked to ensure that trustees timely co-operated in the closing of no-asset cases. 20 With this as the institutional background, it becomes 21 understandable that this Rule is intended to address two governmental entities and not parties in interest, 22 namely, the Clerk of the Bankruptcy Court and the United States trustee. This Rule sets up a ‘default 23 rule’ that authorizes the Clerk to close a case, absent other unexpressed conditions, when a thirty-day 24 period has run after the trustee files a no-asset report with the Clerk and the United States trustee 25 and the United States has not filed an objection that would bring the case back to the attention of the 26 judge assigned to the case. If there were no such default rule, the only way the Clerk’s office could 27 ascertain whether the United States trustee was fully satisfied with the chapter 7 trustee's administration 28 of the case would be to insist that the United States

-10- 1 trustee take the additional affirmative act of sending in periodic reports advising the Clerk to close a 2 scheduled list of numbered chapter 7 cases. That practice would impose an intolerable burden on the 3 United State trustee’s severely limited support staff. The default rule eliminates one round of paper. 4 5 In re Schoenewerk, 304 B.R. 59, 63-64 (Bankr. E.D.N.Y. 2003). 6 Given the purpose behind Rule 5009, the bankruptcy court’s 7 scope of inquiry upon an objection to the trustee’s final report 8 or account is limited “to the question of whether the chapter 7 9 estate has been ‘fully administered.’” In re The Law Firm of 10 Frank R. Bayger, P.C., 2014 WL 3534084, at *1 (Bankr. W.D.N.Y. 11 July 16, 2014). With this background, we proceed to the merits. 12 B. Analysis 13 We are not persuaded by the Cieciorkas arguments on appeal 14 for several reasons. First, Trustee certified that the case had 15 been fully administered thereby raising the presumption in 16 Rule 5009 that it had indeed been fully administered. The 17 presumption is rebuttable. In re Schoenewerk, 304 B.R. at 64 18 (“Rule 5009 has to be read as creating a rebuttable 19 presumption.”). The Cieciorkas complain about how the “asset” 20 was described in the TFR and that there was no evidence 21 regarding Trustee’s investigation of the $15,000 withdrawal; 22 i.e., what he found, and why he concluded, as he claims to have, 23 that Debtor spent the money appropriately pre-petition. These 24 are merely complaints and not evidence that controverts the 25 presumption that the estate was fully administered. 26 Next, the duty to supervise panel trustees is upon the 27 U.S. Trustee. See 28 U.S.C. § 586(a)(1), (3). Since it is the 28 U.S. Trustee’s responsibility to supervise panel trustees, the

-11- 1 bankruptcy court was entitled to infer from the absence of an 2 objection by the U.S. Trustee that the agency was satisfied with 3 Trustee’s level of detail and description of the assets 4 contained in his final report. In any event, since supervisory 5 duties lie with the U.S. Trustee, it is unlikely that a 6 bankruptcy court has authority to order a trustee to amend his 7 or her final report or final account to change the description 8 of an asset due to the lack of detail. See In re Kelco Metals, 9 Inc., 532 B.R. 912 (Bankr. N.D. Ill. 2015) (“There is no clear 10 case that the bankruptcy court has authority to enter an order 11 amending the Final Report, to impose an alternative final report 12 or to order the Trustee to make such an amendment.”). 13 Finally, trustees routinely and informally identify assets, 14 make determinations as to value or benefit, and disregard assets 15 that promise no benefit to the estate. The record shows that 16 Trustee explained his entry on the final report regarding the 17 $15,000 withdrawal; i.e., that Debtor provided documentation and 18 testimony at his 2004 exam which adequately accounted for the 19 funds. Thus, there was no basis for Trustee to pursue turnover 20 of the funds to the estate for purposes of distribution. 21 Without any controverting evidence from the Cieciorkas, the 22 bankruptcy court could properly presume that Trustee acted 23 prudently and on an informed basis in deciding whether to 24 administer the asset. See United States v. Aldrich 25 (In re Rigden), 795 F.2d 727, 730 (9th Cir. 1986) (under 26 business judgment rule “[a] bankruptcy or organization trustee 27 has a duty to exercise that measure of care and diligence that 28 an ordinary prudent person would exercise under similar

-12- 1 circumstances.”). 2 In sum, Trustee filed his Final Account certified under 3 penalty of perjury disclosing the $15,000 withdrawal and its 4 disposition. The Cieciorkas provided no evidence to overcome 5 the presumption that the estate was fully administered or that 6 somehow Trustee had erred. As the bankruptcy court observed, 7 without evidence or analysis, a different description of the 8 $15,000 withdrawal would not change the administration of the 9 case. Accordingly, the bankruptcy court did not abuse its 10 discretion in overruling the Cieciorkas’ objection to the Final 11 Account. See In re Schoenewerk, 304 B.R. at 64 (“[] Rule [5009] 12 impliedly leaves it to the discretion of the Court to determine 13 what kind of showing [the party in interest] has to make before 14 he can burst the bubble of presumption.”). 15 VI. CONCLUSION 16 For the reasons stated, we AFFIRM. 17 18 19 20 21 22 23 24 25 26 27 28

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