Kozman v. Herzig (In Re Herzig)

96 B.R. 264, 1989 Bankr. LEXIS 314, 1989 WL 18277
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedJanuary 23, 1989
DocketBankruptcy No. SA-84-02067 JB, BAP No. CC-87-2111 JMoMe
StatusPublished
Cited by30 cases

This text of 96 B.R. 264 (Kozman v. Herzig (In Re Herzig)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kozman v. Herzig (In Re Herzig), 96 B.R. 264, 1989 Bankr. LEXIS 314, 1989 WL 18277 (bap9 1989).

Opinion

*265 OPINION

JONES, Bankruptcy Judge:

Appellant, Gwendolyn Kozman, appeals a bankruptcy court order denying without prejudice her motion to reopen the Debtor’s bankruptcy case for the purpose of pursuing allegedly unadministered assets.

FACTS

Frederick Herzig, a medical doctor (“Debtor”), filed a Chapter 7 petition on May 18,1984. At the time the petition was filed, the Debtor was a defendant in a medical malpractice action that had been brought by Appellant, Gwendolyn Kozman, in 1981. Appellant alleges that the petition was filed in order to prevent a mandatory settlement conference in the malpractice action from going forward.

The Debtor’s schedules listed 38 unsecured creditors, many of them former patients, with disputed and contingent claims in unknown amounts. Appellant’s debt was included in the schedules. The schedules showed that the Debtor owed $80,000 in secured debt and $48,117 in state and federal taxes. The only assets listed by the Debtor were $1,500 in household and personal goods, and $5,000 in liquidated debts owing the Debtor. The Debtor reported income of $64,000 for the year 1982, and $135,000 for the year 1983.

A Chapter 7 trustee was appointed and on May 25, 1984, the trustee determined that the case was a no-asset one and that the creditors need not file proofs of claim. On September 24, 1984, the Debtor received a discharge. Appellant did not file an objection to discharge or a complaint objecting to dischargeability.

In early 1985, Appellant informed the trustee of her suspicions that the Debtor had concealed assets of the estate. Specifically, Appellant believed that the Debtor had fraudulently transferred property of the estate to his sons in an irrevocable trust several years prior to the filing of the petition. Appellant also believed that the Debtor had concealed partnership interests in three different medical groups.

In March 1985, the trustee sought court authorization to employ an attorney to investigate Appellant’s allegations. The Court appointed attorney Lynne Riddle to represent the trustee. According to an affidavit subsequently filed by Ms. Riddle, she thoroughly investigated Appellant’s contentions and concluded that there was no evidence that the Debtor had concealed any assets. Ms. Riddle further opined that any potential fraudulent transfers had been made outside of the relevant statutes of limitations, both state and bankruptcy. The case was closed on July 25, 1985.

On August 26, 1986, upon the Debtor’s motion, the case was reopened so that the Debtor could add several creditors who had been “inadvertently” omitted from the original schedules. The case was closed for the second time on April 24, 1987.

In June 1987, Appellant informed the trustee that documents filed in the Orange County Superior Court in early 1987 in the Debtor’s divorce proceeding, verified that the Debtor had concealed assets from the bankruptcy court. Specifically, the Superi- or Court had found that the Debtor and his wife had “utilized the interest earned on the trust prior to [their marital] separation.” Appellant had also learned that in 1986, the trust proceeds and assets had been distributed to the Debtor’s two sons, and that in November 1986 one of the Debtor’s sons had gifted back his interest in the trust to the Debtor. The trustee informed Appellant that he would look into the matter, but also informed her that because this was a closed, no-asset case, he would rely solely upon the results of the investigation of the Debtor’s wife’s attorney in the dissolution proceeding.

On September 1, 1987, Appellant filed a motion to reopen the case pursuant to 11 U.S.C. § 350(b), alleging that assets of the estate had not been administered. Both the trustee and the Debtor opposed the motion, arguing that Appellant’s allegations had previously been investigated and that the estate had been fully administered.

After a hearing, the bankruptcy court denied the motion without prejudice on the ground that Appellant had presented insuf *266 ficient evidence to warrant reopening the case. The court further noted that the statute of limitations had run with regard to the trustee’s avoiding powers and, thus, reopening the case would be fruitless. The court also noted that the time to object to discharge had passed. Finally, the court informed Appellant that she could bring another motion to reopen if she obtained more persuasive evidence regarding hidden assets. This appeal followed.

STANDARD OF REVIEW

A decision regarding the reopening of a case based upon allegations of additional assets is committed to the sound discretion of the bankruptcy court, and will not be set aside absent an abuse of discretion. In re Johnson, 291 F.2d 910 (8th Cir.1961).

DISCUSSION

Section 350(b) of the Bankruptcy Code empowers a bankruptcy court to reopen a case to administer previously unadminis-tered assets. That section provides:

A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.

11 U.S.C. § 350(b). Although a motion to reopen is addressed to the sound discretion of the bankruptcy court, In re Stanke, 41 B.R. 379, 380 (Bankr.W.D.Mo.1984) (citing Johnson, 291 F.2d at 910), the court has the duty to reopen an estate whenever pri-ma facie proof is made that it has not been fully administered. In re Mullendore, 741 F.2d 306, 308 (10th Cir.1984); In re Atkinson, 62 B.R. 678, 679 (Bankr.D.Nev.1986); In re Ward, 60 B.R. 660, 663 (Bankr.W.D.La.1986); Stanke, 41 B.R. at 380.

In order for the denial of a motion to reopen to constitute an abuse of discretion, “assets of such probability, administrability and substance must appear to exist as to make it unreasonable under all the circumstances for the court not to deal with them.” Johnson, 291 F.2d at 911. Where the chance of any substantial recovery for creditors appears “too remote to make the effort worth the risk,” a trial court does not abuse its discretion in denying a motion to reopen. In re Haker, 411 F.2d 568, 569 (5th Cir.1969).

Here, as noted, the court’s denial of the motion was based on the following findings: 1) that reopening would be fruitless because the trustee was time barred by 11 U.S.C. § 546(a) from bringing any avoidance actions and because the time for filing objections to discharge had passed; and 2) that the Superior Court’s finding that the Debtor and his wife “utilized interest of the trust prior to the separation” was not sufficient to indicate that the trust was invalid at the time the petition was filed.

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Cite This Page — Counsel Stack

Bluebook (online)
96 B.R. 264, 1989 Bankr. LEXIS 314, 1989 WL 18277, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kozman-v-herzig-in-re-herzig-bap9-1989.