In Re: Augustine Pena, III

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE AUGUSTINE PENA, III, No. 19-60029
Debtor,
BAP No.
18-1098
AUGUSTINE PENA, III,
Appellant. OPINION
Appeal from the Bankruptcy
Appellate Panel for the Ninth Circuit
Spraker, Lafferty, and Brand, Bankruptcy Judges, Presiding
Submitted August 14, 2020 *
Pasadena, California
Filed September 4, 2020
Before: Consuelo M. Callahan, Patrick J. Bumatay, and
Lawrence VanDyke, Circuit Judges.
Opinion by Judge Bumatay
*
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2 IN RE PENA
SUMMARY **
Bankruptcy
The panel affirmed the Bankruptcy Appellate Panel’s
decision affirming the bankruptcy court’s denial of a Chapter
7 debtor’s application to recover funds in the bankruptcy
court’s registry derived from rent payments on his
encumbered properties.
While managing the debtor’s rental properties, the
bankruptcy trustee attempted to pass along the rent payments
to holders of security interests in the properties, but the
security holders did not accept the funds. The trustee later
abandoned the rental parcels, deposited remaining
unclaimed funds in the bankruptcy court registry, and closed
the bankruptcy case. The debtor applied to recover the
unclaimed funds without reopening the bankruptcy.
The panel held that it had jurisdiction over the debtor’s
appeal because the debtor had prudential standing and was a
“person aggrieved” by the bankruptcy court’s order.
Further, the absence of an opposing party, due to the
trustee’s dismissal at the close of the bankruptcy, did not
prevent the panel from exercising jurisdiction.
Turing to the merits, the panel held that the trustee did
not abandon the rents by abandoning the properties from
which they were collected. Accordingly, the funds remained
the property of the bankruptcy estate. Because the rents did
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
IN RE PENA 3
not constitute an estate surplus, the debtor was not entitled
to the funds.
COUNSEL
Sharlene F. Roberts-Caudle, Exeter, California, for
Appellant.
OPINION
BUMATAY, Circuit Judge:
Chapter 7 debtor Augustine Pena III appeals the denial
of his application to recover funds in the bankruptcy court’s
registry derived from rent payments on his encumbered
properties. The funds remain unclaimed, and Pena contends
that he is entitled to them. The bankruptcy court and
Bankruptcy Appellate Panel (“BAP”) disagreed. We affirm.
I.
Augustine Pena filed for Chapter 11 bankruptcy in April
2012. At the time his bankruptcy commenced, Pena owned
30 parcels of real estate, mostly rental properties. In re Pena,
600 B.R. 415, 417–18 (B.A.P. 9th Cir. 2019). After Pena
used cash collateral in an unauthorized manner, the
bankruptcy court converted his case to a Chapter 7
bankruptcy and appointed a trustee. Id. at 418. Pena
immediately appealed the order, first to the district court, and
then to this court. Id. He lost. Id.While Pena’s appeals were pending, the trustee managed
several of Pena’s rental properties located in California
under a court order, collecting rents, depositing them in the
4 IN RE PENA
estate, and disbursing them as appropriate. Id. These
properties were purchased using a deed of trust, so the
trustee passed along the rents from these parcels as cash
collateral to the security holders of the respective security
interests. Id.The security holders, however, did not accept the rent
funds, 1 despite the trustee’s multiple efforts to complete
payment. Id. Nevertheless, the trustee continued to collect
rents from these properties until Summer 2014, at which
point she abandoned the rental parcels as part of her
administration of the Chapter 7 estate. Id.The trustee’s unsuccessful efforts to distribute the rents
ended in February 2016, when she deposited almost $52,000
in remaining unclaimed funds in the bankruptcy court
registry. Id. Ten months later, in December 2016, she closed
Pena’s bankruptcy case, listing the unclaimed funds (and
their rightful owners) in her final account, and paying the
rents into the bankruptcy court registry. Id. at 418–19. Pena
did not object to the court’s final decree approving the
trustee’s actions. Id.In March 2018, Pena filed an application seeking to
recover the unclaimed funds without reopening the
bankruptcy. Id. at 419. The bankruptcy court rejected
Pena’s application, finding that the trustee appropriately
administered the rents by paying them into the court’s
registry after failing to complete payments. Id. Moreover,
the court found that under the Bankruptcy Code, the estate,
and by extension Pena’s creditors, were entitled to the rent
1
The record reflects that several of the security holders refused to
accept the funds because the properties were in foreclosure or because
the bank had no records of Pena being a client.
IN RE PENA 5
payments. Id. The court also pointed out that at the time the
bankruptcy closed, Pena still had $411,000 in unpaid,
unsecured debt. Id. at 420.
On appeal, in a careful, well-reasoned opinion, the BAP
affirmed the bankruptcy court, holding that the rents were
separate assets from the underlying rental properties, and
were, therefore, not abandoned along with the parcels. Id.at 422–24. On this basis, the BAP concluded that Pena had
no interest in the funds. Id. at 424. The BAP declined,
however, to determine what rights any other parties may
have in the funds. Id.Pena appealed the BAP’s decision to this court.
II.
We must first assure ourselves that we have jurisdiction
over Pena’s appeal. Steel Co. v. Citizens for a Better Env’t,
523 U.S. 83, 94–95 (1998) (“The requirement that
jurisdiction be established as a threshold matter springs from
the nature and limits of the judicial power of the United
States and is inflexible and without exception.”
(simplified)). As Pena’s bankruptcy did not result in a
surplus and no appellee appears before us, this case raises
standing and adversity questions.
A.
In the bankruptcy context, we have adopted a prudential
test to determine whether an appellant has standing to appeal
as a “person aggrieved” by the bankruptcy order. In re
P.R.T.C., Inc., 177 F.3d 774, 777 (9th Cir. 1999). Under this
standard, an appellant is “aggrieved if the bankruptcy court
order diminishes the appellant’s property, increases his
6 IN RE PENA
burdens, or detrimentally affects his rights.” In re Sisk,
962 F.3d 1133, 1143 (9th Cir. 2020) (simplified).
“Ordinarily, a [Chapter 7] debtor cannot challenge a
bankruptcy court’s order unless there is likely to be a surplus
after bankruptcy.” In re P.R.T.C., 177 F.3d at 778 n.2. In
such cases, the “trustee, as the representative of the
bankruptcy estate, is the proper party in interest, and the only
party with standing to prosecute causes of action belonging
to the estate.” Haskins v. Farmers Home Admin., 87 F.3d
1319 (9th Cir. 1996) (unpublished) (simplified).
Nevertheless, this court has assumed standing where a
debtor claimed entitlement to property that had allegedly
been abandoned by the bankruptcy trustee. Sierra
Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705,
708–10 (9th Cir. 1986).
We hold that Pena has prudential standing to appeal the
BAP decision. The fact that Pena’s Chapter 7 estate did not
result in a surplus does not address his central claim here:
that the unclaimed funds are not part of the estate because
they were abandoned by the trustee. This makes Pena’s case
analogous to Sierra Switchboard, where the court implicitly
assumed standing to decide whether the debtor was entitled
to a particular piece of property purportedly abandoned by
the trustee. Id. at 708. Accordingly, we find that Pena is a
“person aggrieved” by the bankruptcy court’s order.
B.
In this case, the trustee was dismissed at the close of the
bankruptcy, and therefore no party opposes Pena’s appeal.
Although infrequent, the absence of an opposing party does
not prevent us from exercising jurisdiction here. As we
recently explained, “[o]ur court has regularly considered
IN RE PENA 7
bankruptcy appeals with only one party appearing.” In re
Sisk, 962 F.3d at 1144.
Our practice of considering uncontested appeals in the
bankruptcy context accords with longstanding tradition. The
selective exercise of non-adversarial jurisdiction, despite its
origins in the Roman civil code, has deep roots in English
and American law. See James E. Pfander & Daniel D. Birk,
Article III Judicial Power, the Adverse-Party Requirement,
and Non-Contentious Jurisdiction, 124 Yale L.J. 1346,
1405–06, 1410–16 (2015). Historically, English courts—
and later, American colonial courts—regularly exercised
“non-contentious” jurisdiction in a wide variety of cases,
including those involving land transfers, admiralty,
marriage, probate proceedings, equitable receiverships, and
bar admissions. Id. at 1411–13. Many of these practices
were received into American law during the Founding era.
Id. at 1414–16.
Likewise, in modern practice, federal courts regularly
exercise jurisdiction over non-contentious cases in a variety
of contexts. See id. at 1444 (“Judicial activity in uncontested
bankruptcy proceedings, the entry of plea agreements, and
the registration of settlements enjoy a similar foundation in
positive law.”); Martin H. Redish & Andrianna D. Kastanek,
Settlement Class Actions, the Case-or-Controversy
Requirement, and the Nature of the Adjudicatory Process,
73 U. Chi. L. Rev. 545, 587 n.157 (2006) (“It suffices to note
that the bankruptcy scheme is a narrow exception to the
adverseness requirement.”); James E. Pfander & Daniel
Birk, Adverse Interests and Article III: A Reply, 111 Nw. U.
L. Rev. 1067, 1072 (2017) (“[F]ederal courts have long been
permitted to entertain naturalization and voluntary
bankruptcy petitions . . . in which no adverse party
necessarily appears before the court.”).
8 IN RE PENA
Given this long tradition of exercising jurisdiction over
unopposed matters in bankruptcy law and analogous
contexts, we do not see the lack of adverseness as an obstacle
to our jurisdiction here.
III.
Turning to the merits, Pena contends that the trustee
abandoned the rents by abandoning the properties from
which they were collected, thus returning them to his
possession. We disagree. As an initial matter, Pena’s
argument fails because rental properties and rents collected
from those properties are separate, discrete classes of estate
property. See 11 U.S.C. § 541(a)(6) (categorizing “rents . . .
of or from property of the estate” as a discrete class of estate
property); 2 see also In re Lindsie Pham, No. 8:12-BK-
18847-CB, 2019 WL 77505, at *5 (C.D. Cal. Jan. 2, 2019)
(“[A]bandonment of real property does not also abandon
personal property that is related to, but separable from the
real property.”).
Thus, in order to recover, Pena must demonstrate that the
rents themselves—and not just the underlying properties—
were abandoned by the trustee under § 554(a). A trustee
cannot abandon property under this provision by accident.
See Catalano v. C.I.R., 279 F.3d 682, 686 (9th Cir. 2002)
(rejecting appellant’s assertion that a trustee’s actions could
“accomplish[] a de facto abandonment” where “no formal
abandonment was obtained” under the Code). Rather,
abandonment under § 554(a) is a “formal relinquishment of
the property at issue from the bankruptcy estate …. [which]
requires notice and a hearing.” Id. at 685. A trustee’s intent
2
All subsequent statutory references are to Title 11 of the United
States Code unless otherwise indicated.
IN RE PENA 9
to abandon estate property, therefore, must be clear:
“[T]here is no abandonment without notice to creditors.”
Sierra Switchboard, 789 F.2d at 709.
Problematically for Pena, nothing in the record indicates
any intent on the trustee’s part to abandon the rent payments.
The trustee’s notices of abandonment to creditors
unambiguously refer to her abandonment of real property
and contain no evidence of an intent to abandon related rent
payments. Nor does the record show that any hearings were
held for the purpose of abandoning the rent payments.
Pena’s abandonment claim is also undercut by his own
actions in the proceedings below. Pena made no objection
to the trustee’s attempts to distribute the rent funds to his
secured creditors during the pendency of the estate and only
advanced his novel theory of entitlement well over a year
after the estate closed. Pena also conceded that the rents
were still property of the estate even after the trustee’s
abandonment of the real properties. See In re Pena, 600 B.R.
at 419–20.
In the absence of affirmative evidence of abandonment,
we find the funds remain the property of the bankruptcy
estate. Pena, therefore, has no interest in the rents unless
they constitute an estate surplus. See § 726(a) (requiring the
trustee to satisfy all outstanding obligations, plus interest,
before distributing any estate proceeds to the debtor); see
also In re Riverside-Linden Inv. Co., 945 F.2d 320, 323 (9th
Cir. 1991) (“When all claims against a Chapter 7 debtor have
been paid, the surplus in the estate, if any, is to be paid out
as interest to the claimants.” (citing § 726(a)(5))). No
surplus exists here—when his bankruptcy case closed,
Pena’s unpaid debts exceeded $411,000. Consequently,
Pena is not entitled to the funds.
10 IN RE PENA
IV.
Pena’s alternative theory asserts, in essence, that he is
entitled to the unclaimed rents because no one else is.
Specifically, Pena contends that “[i]n the absence of any
other available claimant, it is difficult to see how equity
favors keeping the Funds out of circulation forever.” This
argument falls flat. First, Pena bears the burden of
affirmatively establishing his entitlement to the funds—a
burden that he has not met. He cannot recover the funds by
simply alleging that other parties are not entitled to them.
Second, Pena’s claim that the funds will remain in limbo
indefinitely is incorrect—under 28 U.S.C. § 2042, the funds
will escheat to the U.S. Treasury if left unclaimed for five
years.
Moreover, Pena’s failure to object to how the rents were
administered below belies any argument on appeal that they
were unadministered or that the secured creditors are not
entitled to them. 3 In her final account, the trustee detailed
the interests held by various security holders in the rents.
Pena made no objection to the trustee’s determinations
regarding ownership. The bankruptcy court, in its final
decree, then approved of the trustee’s disbursement of the
unclaimed funds into the court registry in the name of the
secured creditors, and closed the case. And once again, Pena
failed to object. Thus, Pena’s own conduct below
undermines his contention that the secured creditors had no
interest in the funds.
3
We decline to address any claim of “technical abandonment” under
§ 554(c). While Pena referenced the provision in his brief, he failed to
develop any argument as to why it entitles him to relief. “[I]ssues raised
in a brief that are not supported by argument are deemed abandoned.”
Martinez-Serrano v. I.N.S., 94 F.3d 1256, 1259 (9th Cir. 1996).
IN RE PENA 11
* * *
The BAP correctly found that the rents belonged to the
bankruptcy estate. Accordingly, Pena has no right to them.
AFFIRMED.