United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: AUGUSTINE PENA, III, Debtor. AUGUSTINE PENA, III, Appellant.
and Submitted on January 24, 2019 at Sacramento, California
from the United States Bankruptcy Court for the Eastern
District of California Honorable Fredrick E. Clement,
Bankruptcy Judge, Presiding.
Sharlene Fay Roberts-Caudle argued for appellant.
Before: SPRAKER, LAFFERTY, and BRAND, Bankruptcy Judges.
SPRAKER, Bankruptcy Judge.
SPRAKER, Bankruptcy Judge.
debtor Augustine Pena, III, appeals from an order denying his
application to recover $51, 777.03 in unclaimed funds held in
the bankruptcy court's registry. The unclaimed funds were
rents his chapter 7 trustee collected from Pena's rental
properties before the trustee abandoned those properties. The
trustee initially tried to pay the rents to the creditors
holding security interests in the underlying rental
properties, but the secured creditors never cashed the
trustee's checks. The trustee thereafter voided the
checks and deposited the funds in the court's registry in
accordance with § 347(a).
claims that, because his former secured creditors are no
longer entitled to the unclaimed funds, the monies should be
paid to him instead. Pena argues that the trustee abandoned
the rents when she abandoned the underlying rental
properties. He reasons that, as a result, the estate has no
interest in the funds the trustee deposited into the
court's registry. We disagree. The chapter 7 trustee has
administered these rents, and they remain property of the
estate. As a result, ownership of the funds has never
reverted to the debtor. None of Pena's other arguments on
appeal have any merit. Accordingly, we AFFIRM the bankruptcy
court's order denying Pena's application for
commenced his bankruptcy case by filing a voluntary chapter
11 petition in April 2012. At the time he filed his
bankruptcy, Pena owned 30 parcels of real property, 29 of
which were rental properties. In June 2012, the bankruptcy
court sua sponte converted the case from chapter 11 to
chapter 7 because of Pena's unauthorized use of cash
collateral. Trudi G. Manfredo was appointed to serve as the
chapter 7 trustee. Pena appealed the conversion order first
to the United States District Court for the Eastern District
of California and then to the Ninth Circuit Court of Appeals.
He lost both appeals.
conversion, Manfredo sought to abandon the rental properties.
The bankruptcy court ruled, however, that during the pendency
of the debtor's appeals, it lacked jurisdiction to order
relief from stay or abandonment with respect to any of
Pena's real property. Instead, the bankruptcy court
entered an order under § 721 authorizing Manfredo to
manage Pena's rental properties, including their
maintenance and the collection of rents. Pursuant to that
order, Manfredo managed the rental properties until Pena lost
both appeals. Manfredo collected the rents from the rental
properties, deposited them into the estate's account, and
disbursed them in accordance with her duties as chapter 7
trustee. After the Ninth Circuit affirmed conversion of the
case to chapter 7, Manfredo abandoned the rental properties
and shortly thereafter ceased collection of
unclaimed funds at issue represent rents Manfredo collected
from rental properties throughout California. Two of the
properties were located in Compton, California. The other
rental properties at issue were in Visalia, Corcoran, and
Tulare, California. Each property was encumbered by a deed of
trust, and the rents from the properties were treated as cash
collateral of the respective secured creditors while Manfredo
administered the properties. Manfredo abandoned the Tulare
property in July 2014, and abandoned the other properties in
August 2014. During the second half of 2015, several months
before the bankruptcy case was closed, Manfredo sought to pay
the secured creditors a combined total of $51, 777.03
comprised of rents collected from the
cash disbursement records reflect that she tried
unsuccessfully to pay these amounts to the secured creditors
several times. After those attempts failed, in February 2016,
Manfredo paid the $51, 777.03 in rent proceeds into the court
registry. Manfredo's actions concerning the unclaimed
funds were disclosed in her Final Account and Distribution
Report ("Final Account").
Manfredo administered the rents on behalf of the secured
creditors, the case was administered as a no asset case, and
the Final Account proposed no distribution to Pena's
unsecured creditors. Manfredo served the notice of the Final
Account on all parties in interest, including Pena. The
notice advised that if no objections were filed, a final
decree would be entered and the case closed without further
order. Neither Pena, nor anyone else, objected to the Final
Account. The bankruptcy court entered a final decree and
closed Pena's bankruptcy case on December 27, 2016.
over a year after the case was closed, on March 1, 2018, Pena
filed an application seeking to recover the unclaimed funds
without reopening the bankruptcy case. According to
Pena, none of the secured creditors could establish a present
entitlement to the unclaimed funds because the subject
properties had been foreclosed upon or Pena was current on
his mortgage payments. Pena stated that he conveyed the
Compton properties to a third party in September 2014. He
also advised that the secured creditors of the Visalia and
Corcoran properties foreclosed on these properties in 2016.
Nothing in the record demonstrates what happened to the
further argued that, as a result of Manfredo's
abandonment of the rental properties in 2014, the rental
properties - and the rents Manfredo collected - should be
treated "as if no bankruptcy case had been filed,"
in which case he would have been entitled to collect and use
all rents absent any event of default under his security
agreements with his secured creditors. Therefore, Pena
concluded that he, and not his unsecured creditors, was
entitled to the unclaimed funds.
served the application on the secured creditors, but received
no objections. Still, the bankruptcy court disagreed with
Pena. According to the court, Manfredo's disbursement of
the rents into the court's registry as unclaimed funds
when the secured creditors failed to cash their disbursement
checks was consistent with her statutory obligations under
§ 347. Furthermore, the bankruptcy court held
that, pursuant to 28 U.S.C. § 2042, the secured
creditors had five years to claim the funds. The court noted
that this time period was not close to running. If the
five-year time period elapsed without the secured creditors
successfully claiming the funds, the bankruptcy court opined
that the funds should escheat to the United States. 28 U.S.C.
importantly, the bankruptcy court ruled that, as between Pena
and his bankruptcy estate, the bankruptcy estate was entitled
to the rents. The bankruptcy court rejected Pena's
assertion that the unclaimed rents collected from the
properties had been abandoned along with the properties in
2014, noting that rents were separate property of the estate
under § 541(a)(6). The court explained that, under the
distribution scheme imposed by § 726(a), it was the
estate's unsecured creditors, not Pena, that were
entitled to unclaimed rents if the secured creditors no
longer had any entitlement to those funds. The court noted
that Pena had disclosed $411, 000 in unsecured debt that
March 29, 2018, the bankruptcy court entered an order denying
Pena's application. Pena timely appealed.
bankruptcy court had jurisdiction under 28 U.S.C.
§§ 1334 and 157(b)(2)(A). We have ...