Untitled Document

2 ABR 431 IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA

In re DANIEL GAUDIANE and	)
JOSEPHINE GAUDIANE,	)
	)	No. A87-437 CIV
Debtors.	)
________________________________________	)
	)
JEANETTE JAMES, Trustee,	)
Appellant,	)	OPINION
	)
vs.	)
	)
DICK FISCHER DEVELOPMENT;	)
DICK FISCHER, Individually;	)
FIRST NATIONAL BANK OF	)
FAIRBANKS; ALASKA INDUSTRIAL	)
DEVELOPMENT CORPORATION;	)
DONNA LOUISE AIELLO and THE	)
PALFY FAMILY TRUST; DANIEL	)
and JOSEPHINE GAUDIANE;	)
GERALD L. LA PARALE,	)
Guardian Ad Litem for Fern	)
Palfy; CAROL LUNDGREN,	)
Personal Representative of	)
Estate of James Lundgren;	)
and ARTHUR L. ROBSON and AD	)
HOC COMMITTEE OF CREDITORS,	)
	)
Appellees.	)
	)
________________________________________	)

This is an appeal from the bankruptcy court's decision denying appellant's motion to vacate abandonment of a parcel of
Erratum: The remainder of this sentence/paragraph/section was not printed in the original.

   2 ABR 432 I.    BACKGROUND^(1.)

        On March 24, 1976, Daniel and Josephine Gaudiane purchased an undeveloped parcel of real estate located in Fairbanks, Alaska from Fern Palfy. Excerpts of Record (ER) 15, exhibit A.^(2.) The Gaudianes purchased the parcel for $874,000.00. Id., exhibit B. Donna Aiello had an undivided one-half interest in the proceeds of the promissory note and a beneficial interest in the deed of trust.

        On June 18, 1981, the Gaudianes filed individual chapter 7 bankruptcy petitions. See e.g., Bankruptcy Petition of Josephine Gaudiane. In the petitions, the Gaudianes scheduled the property as having a value of $l,200,000.00.^(3.) Id. The petitions also stated, however, that $1,448,327.00 was owed to secured creditors and creditors with priority. See Id. schedules A-1 and A-2. The bankruptcy court discharged the Gaudianes on October 2, 1981.

2 ABR 433 In the request for relief from stay, filed February 2, 1982, Clark alleged that "[t]here would appear to be no equity in this property for the trustee to distribute to unsecured creditors of the bankrupt." Bankruptcy file of Daniel Gaudiane, Document # 25 at 4 (emphasis added). On May 6, 1982, Ray Clark, on behalf of Fern Palfy, filed a complaint for abandonment of the parcel of land. ER 1. The complaint, including the attached exhibits, refer to the following items: (1) the Palfy conservatorship; (2) Donna Aiello's interest as a beneficiary; (3) the superior court's order permitting Ray Clark to proceed on behalf of the conservatorship; (4) the appraisal made by the Fairbanks North Star Borough that the "reasonable market value of the property is $397,825.00; ^(4.) and (5) the debt owed on the property exceeded $1,000,000.00. Id.

The bankruptcy court denied the initial motion, and Clark filed an amended complaint for abandonment.^(5.) ER 5 (notes of hearing held July 16, 1982) and ER 6 (amended complaint for abandonment). Although the trustee drafted an objection to the relief from stay, the trustee abandoned the effort and filed a

2 ABR 434 document stating that the trustee did not oppose the abandonment. ER 79, at 59 and exhibit 2 (handwritten notes of draft of opposition); Id. at 49 (why the trustee stipulated to abandonment); ER 3 (non-opposition to abandonment). The trustee did not ensure that "proper procedures" were followed.^(6.) The Gaudianes did not oppose the amended complaint. ER 2 (non-opposition to complaint); ER 6, at 5 (recitation of stipulation of abandonment).

Prior to her decision not to oppose the amended complaint for abandonment, the trustee took some action. The trustee found a real estate salesperson who issued an opinion on the quick sale value of the land. The real estate salesperson opined that the land could sell for $895,00.00. ER 79, at 60 (Deposition of Jeanette James); see also ER 79, exhibit 1 (listing for land suggesting price of $895,000.00). The trustee admits doing nothing more than talking to some real

   2 ABR 435 estate people and that she never listed the property for sale. ER 79, at 94. The trustee also did not analyze the liens encumbering the property. Id., at 97.

        Saluri, an attorney for Clark, the conservator, called the trustee in January or February, 1982, stating that they wanted to foreclose on the property. ER 79, at 59. The trustee believed that Saluri did not want to make any effort to extend any financing and simply wanted the property back. Id. at 64. The trustee conceded that as a secured creditor, it was Clark's prerogative to want the return of the asset. Id. Saluri did not inform the trustee of the deal between Clark and Lundgren. ^(7.)

        Nevertheless, the trustee stated that she thought she could sell the property and get some money for the estate. ER 57 (affidavit of James) (emphasis added). The trustee's statement was based on the fact that $ 889,000 was owing on the deed of trust, the accrued interest totaled $ 180,O00 and a total encumbrance of $1,000,000. Id. In her deposition, however, the trustee opined that she could not have sold the property for more than all of the liens and encumbrances on it. ER 79, at 23. According to Peter Aschenbrenner, the property was encumbered by $1,000,000.00 because of the senior deed of trust and an additional $ 1,000,000.00 because of junior liens. See ER 55, exhibit 18, at 4, para. 7 (affidavit of

   2 ABR 436 Aschenbrenner).

        On November 22, the bankruptcy court lifted the bankruptcy stay, ordered the property abandoned, and revested title in the Gaudianes. ER 10. Fern Palfy, through Clark as conservator, repurchased the property at a trustee foreclosure sale for $1,170,990.71. ER 15, Exhibit J, at 3.

        At the same time the complaint for abandonment was filed, several persons were negotiating a document called the Ground Lease Purchase Agreement (GLPA). Under the GLPA, Lundgren received a forty-two month lease and an option to purchase the property for approximately $800,000.00. Daniel Gaudiane was a party to the GLPA and was to receive some proceeds. The parties disagreed, and Gaudiane filed a lawsuit. Ultimately, the Alaska Supreme Court upheld the GLPA. See Gaudiane v. Lundgren, 723 P.2d 1267 (Alaska 1986).

        During the pendency of the Lundgren case, the trustee apparently learned of the GLPA. The trustee then filed a verified motion to vacate the judgment of abandonment. ER 13. In the motion, the trustee alleges fraud on the court and several omissions including failure to name Aiello as a defendant; failure to disclose the Aiello litigation; failure to disclose Aiello's claim of ownership; failure to disclose the existence of the GLPA; and failure to disclose Gaudiane's expectation of profits.

        Judge Herbert Ross reviewed the files, deposition transcripts, and previous orders entered in this case. During

2 ABR 437 a hearing he denied the trustee's motion to vacate judgment and ordered appellee to file a lodged form of order. ER 96. Judge Ross then entered written findings of fact and conclusions of law. ER 102. Judge Ross further explained his decision during a hearing. ER 131.

Specifically, Judge Ross found that on the date the bankruptcy court initially granted the abandonment, the property was overencumbered by at least $300,000 or $400,000 over the value listed in the debtors' schedule. The court found that the bankruptcy estate did not lose anything because of the abandonment. No violation of the automatic stay occurred. Furthermore, Judge Ross found that Dick Fischer and Dick Fischer Development did not commit a fraud, and that they purchased the property from Lundgren without any notice of fraud or wrongdoing. See generally ER 102.

II. ANALYSIS

A. Standard of Review

This Court reviews the bankruptcy court's findings of fact under the clearly erroneous standard. See Goichman v. Bloom (In re Bloom), No. 88-5956 slip op. 5161, 5167 (9th Cir. May 15, 1989); Rubin v. West (In re Rubin), No. 88-6217, slip op. 5285, 5290 (9th Cir. May 3, 1989); Matter of Roach, 13 B.R. 431, 434 (D. Alaska)(clearly erroneous standard applied to credibility findings). A finding is clearly erroneous when, after viewing the entire record, the reviewing court is left with the definite and firm conviction that a mistake has been

   2 ABR 438 made. See United States v. Unites States Gypsum Co., 333 U.S. 364, 395 (1948); United States v. Burnette, 698 F.2d 1038, 1048 n. 18 (9th Cir. 1983). This Court reviews de novo the conclusions of law. See Rubin, slip op. at 5290.

        B.    Abandonment

        The bankruptcy code provides that upon the request of the trustee or a party in interest, and after notice and a hearing, the trustee may "abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate." 11 U.S.C.§ 554(a)-(b). The trustee is not obligated to accept or keep property that is so encumbered with liens that it is a burden to the bankruptcy estate. See Meyer v. Fleming, 327 U.S. 161, 166 n. 9 (1946)(quoting Van der Stegen v. Neuss. Hesslein & Co. 270 N.Y. 55, 59-60, 200 N.E. 577, 578 (1936)); Schmidt v. Esquire, Inc., 210 F.2d 908, 913 (7th Cir. 1954); In re Polumbo, 271 F.Supp. 640, 642-43 (W.D. Va. 1967); In re Tummillo, 14 B.R. 736, 737 (Bankr. E.D.N.Y. 1981); In re Bennett, 13 B.R. 643, 645 (Bankr. W.D. Mich. 1981). The general rule is that the trustee should abandon assets that are encumbered in excess of their value. See In re Thomas, 204 F.2d 783, 792 (7th Cir. 1953); Federal Land Bank of Berkeley v. Nalder, 116 F.2d 1004, 1007 (10th Cir.), cert. denied, 313 U.S. 578 (1941); Polumbo, 271 F.Supp. at 643. When the trustee abandons the property,

2 ABR 439 title to the asset generally revests in the dehtor. ^(8.) See Brown v.O'Keefe, 300 U.S. 598, 602 (1937) (title stands as if no assignment to the trustee had been made); Scharmer v. Carrollton Mfg. Co., 525 F.2d 95, 98 (6th Cir. 1975); Schmidt, 210 F.2d at 913; Thomas, 204 F.2d at 792; Polumbo, 271 F.Supp. at 643; In re Flamand, 78 B.R. 644, 645-46 (Bankr. D. R.I. 1987); Tummillo, 14 B.R. at 737; Bennett, 13 B.R. at 645; see generallv 4 Collier on Bankruptcy para. 554.02[2] (15th ed. 1989). The act of abandonment does not affect the validity of liens encumbering the property.^(9.) See Polumbo, 271 F.Supp. at 643. The practical effect of abandoning a piece of property is that the asset is removed from the jurisdiction of the bankruptcy court. See id. The parties with a lien on the property are free to proceed as they normally would under state law. See id.

2 ABR 440 Once the trustee abandons an asset, however, he/she is generally precluded from reclaiming it, even if there is a subsequent increase in the value of the asset. ^(10.) See In re Southland Supply, Inc., 657 F.2d 1076, 1082 (9th Cir. 1981)(trustee could not challenge disposition of account's receivable because he abandoned the asset with the knowledge that secured creditors still had a lien on lawsuit proceeds); Matter of Lintz West Side Lumber, Inc. , 655 F.2d 786, 789 (7th Cir. 1981); In Re Wornell, 70 B.R. 153, 154-55 (W.D. Mo. 1986); In re Polumbo, 271 F.Supp. 640, 643 (W.D. Va. 1967); Flamand, 78 B.R. at 645; In re Burch Co., Inc., 37 B.R. 273, 274 (Bankr. D. S.C. 1983); In re Enriquez, 22 B.R. 934, 936 (Bankr. D. Neb. 1982); In re Sutton, 10 B.R. 737, 739-40 (Bankr. E.D. Va. 1981); 4 Collier on Bankruptcy para. 554.02[2] (15th ed. 1989). The exceptions to this rule are if the asset is unscheduled or the asset is concealed from the trustee. See Scharmer, 525 F.2d at 98 (exception if unscheduled asset); Thomas, 204 F.2d at 792-93 (exception if property concealed); Burch, 37 B.R. at

   2 ABR 441 273-74 (exceptions are the asset is concealed or the asset is unscheduled); Enriguez, 22 B.R. at 936 (same); Sutton, 10 B.R. at 740 (same). The rationale for the exceptions is that the trustee has not had an opportunity to pursue the claim. Cf. Stein v. United Artists Corp., 691 F.2d 885, 891 (9th Cir. 1982) ("When bankrupt fails to list an asset, he cannot claim abandonment because the trustee has had no opportunity to pursue the claim.").

        In Lintz West Side Lumber, however, the Seventh Circuit stated that the absence of an explicit ban on reconsideration of abandonment orders and the availability of alternate re1ief indicate that abandonment orders remain subject to the rule that bankruptcy judges can reconsider their orders. 655 F. 2d at 791. Subsequent cases have interpreted Lintz to require a mistake and that the revocation of the order may not unfairly prejudice the parties. See In re Alt, 39 B.R. 902, 904 (Bankr. W.D. Wis. 1984).

        The record in this case supports the bankruptcy court's conclusion that at the time of the abandonment the asset was overburdened. The schedules filed by the Gaudianes showed debts well in excess of the scheduled value of the property. Despite the fact that the motion for abandonment stated that the value of the property was approximately $397,000, the other appraisals still only showed a value of $1.2 to 1.3 million. ER 124, exhibits 1 and 4. These appraisals are still lower than the debt to the estate. The bankruptcy court's findings

   2 ABR 442 that the land was overburdened and that the estate did not suffer are not clearly erroneous. Case law both before and after the new bankruptcy code says that the prudent thing to do is to rid the bankruptcy estate of property that is burdensome. See Meyer, 327 U.S. at 166 n.9; Polumbo, 271 F.Supp. at 642-43; Tummillo, 14 B.R. at 737; Bennett, 13 B.R. at 645.

        Accordingly, this Court must affirm the decision of the bankruptcy court unless the judgment of abandonment is void ab initio.^(11.) See e.g. Southland Supply, 657 F. 2d at 1082; Wornell, 70 B.R. at 154-55. Appellant argues that the judgment is void because the parties violated the automatic stay and because they committed fraud on the court. Transcript of Oral Argument, at 47. The court will consider each of these contentions in turn.

        C.    Violation of Automatic Stay

        Once a person files bankruptcy petition, an automatic stay arises by operation of law. See 11 U.S.C. § 362; In re Mellor, 734 F.2d 1396, 1398 (9th Cir. 1984). The automatic stay is intended to give the debtor breathing room and stops collection efforts, including foreclosure actions. See

   2 ABR 443 Goichman v. Bloom (In re Bloom, No. 88-5956 slip op. 5161, 5165 (9th Cir. May 15, 1989). Actions taken in violation of the automatic stay are void. See id. at 5166 n. 3. However, a business that has rights under a promissory note, which is secured by a deed of trust, is entitled to seek relief from the automatic stay. See In re Harlan, 783 F.2d 839 (9th Cir. 1986)(corporation, who was trustee under deed of trust, entitled to relief from automatic stay so that it could initiate foreclosure proceedings).

        In this case, Clark, purporting to act on behalf of the Palfy Family Trust and the holder of the deed of trust on the property, moved the bankruptcy court to lift the stay and order the property abandoned. Under the case law, and by the bankruptcy trustee's own admission,^(12.) the trustee of a deed of trust has the right to ask the bankruptcy court to lift stay. The real question in this case is whether a secured creditor, prior to seeking relief from the automatic stay, is permitted to enter into contracts premised upon the bankruptcy court ultimately granting a lift of stay. This Court holds that such actions are permissible.

        Appellant argues that the business dealings between Clark, Lundgren, Gaudiane, etc. violated the automatic stay because it amounted to an "act to obtain possession of the

   2 ABR 444 property of the estate." Brief of Appellant at 84; see also 11 U.S.C. § 362(a)(3). While appellant's argument is somewhat persuasive in a semantic sense, it clearly does not make logical sense given the structure of the statute and the realities of business.

        Appellant's argument makes semantic sense because any business transactions entered into in contemplation of the bankruptcy court lifting stay are, in a strict sense, "acts to obtain possession." Upon closer examination, however, this argument fails.

        In a general sense, the acts forbidden under § 362(a) are acts affecting title to assets in the possession of the debtor. Thus, secured creditors are stayed from enforcing article nine security interests, foreclosing on real estate, and the government cannot start tax proceedings for delinquencies. In this case, unlike the cases cited in the appellant's brief, the acts complained of did not affect the title to the asset at all. Title to the property still remained with the estate. Clark, the Palfy Trust, Fischer, or Lundgren did not initiate a foreclosure proceeding without first obtaining permission of the bankruptcy court. In a sense, the GLPA was a contract premised upon the assumption that the bankruptcy court would lift the stay. If the bankruptcy court had not lifted the stay, that contract would have been useless.

        The argument that the GLPA violated the lift stay also makes no economic sense. Surely the trustee does not believe

   2 ABR 445 that secured creditors must wait to find out how to dispose of assets until after the bankruptcy court lifts the stay. Such a result would require commercial institutions to warehouse equipment or inventory after the lift stay because only then could the bank determine to whom to sell the property or when to hold a public sale. If it is appropriate for the bankruptcy court to lift the stay, i.e, the court follows the standards for lifting stay, the bankruptcy estate is not harmed by the commercial negotiations by secured creditors prior to their seeking relief.

        Here, the legal effect of the commercial dealings of the GLPA was to require someone to ask the bankruptcy court to lift the stay. This contractual obligation did not absolve the trustee from performing her duties or the bankruptcy court from performing its obligations. The bankruptcy court still has to determine, based upon the record presented to it, whether lifting the stay and abandonment is appropriate. If the bankruptcy court were to say no, the parties involved in the GLPA would not have been able to foreclose and subsequently sell the property. Therefore, this Court affirms the bankruptcy court's conclusion that there was no violation of the automatic stay.

        D.Fraud on the Court

                1.Applicable Principles

        This court has the inherent power to grant relief when a judgment is procured by fraud on the court. See Universal Oil

2 ABR 446 Prod. Co. v. Root Ref. Co., 328 U.S. 575, 580 (1946); Trehan v. Von Tarkanyi, 63 B.R. 1001, 1006 n.8 (S.D.N.Y. 1986). However, "fraud on the court" is a phrase that is not easily defined. See Abatti v. Commissioner of Internal Revenue Serv., 859 F.2d 115, 118 (9th Cir. 1988).

Over the years, the Ninth Circuit has given the phrase "fraud on the court" varying definitions. See generally 11 C. Wright & A. Miller, Federal Practice and Procedure § 2870, at 252-53(1973). The Ninth Circuit has defined "fraud on the court" 'as an unconscionable plan or scheme which is designed to improperly influence the court in its decision.' " Phoceene Sous-Marine, S.A. v. U.S. Phosmarine, Inc., 682 F.2d 802, 805 (9th Cir. 1982)(quoting England v. Doyle, 281 F.2d 304. 309 (9th Cir. 1960)). The court cited a somewhat similar definition with approval:

"Fraud upon the court" should, we believe, embrace only that species of fraud which does, or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery can not perform in the usual manner its impartial task of adjuding [sic] cases that are presented for adjudication. Fraud inter partes, without more, should not be a fraud upon the court, but redress should be left to a motion under 60(b)(3) or to the independent action.

Toscano v. Commissioner of Internal Revenue Serv., 441. F.2d 930, 933 (9th Cir., 1971)(quoting 7 Moore's Federal Practice, § 60.33,at 512-13 (2d ed. 1970)).^(13.) Finally, the Ninth Circuit

   2 ABR 447 has said that fraud on the court exists when "when the acts of a party prevent his adversary from fully and fairly presenting his case or defense." See Abatti, 859 F.2d at 118. Whatever definition is used, "fraud on the court" must be read narrowly in order to preserve the finality of judgments. See Toscano, 441 F.2d at 934; 11 Wright & Miler, § 2870, at 253 (fraud on the court to apply in the unusual cases).

        It is important to distinguish "fraud on the court" from "fraud" in general. See 11 Wright & Miller § 2870, at 253-54; 7 J. Moore & J. Lucas, Moore's Federal Practice para. 60.33, at
60-360 to 60-362 (2d ed. 1987)(hereinafter Moore's Federal Practice). It is improper to invoke the concept of "fraud on the court" when the wrong, if any, is only between the litigants and is not an assault on the integrity of the judicial process. See 11 Wright & Miller § 2870, at 253-54; 7 Moore's Federal Practice para. 60.33, at 60-360 to 60-362. Examples of fraud on the court include bribery of a judge or jury, employment of counsel to improperly influence the court, and corruption of the jury. See 11 Wright & Miller, § 2870, at 255-57; 7 Moore's Federal Practice para. 60.33, at 60-357 to 60-358.

                2.    The Facts of this Case

        In this case, it is impossible to conclude that the integrity of the judicial process has been assaulted. There is no evidence that the motions to lift stay and for abandonment were part of a plan to improperly influence the decision of the

   2 ABR 448 bankruptcy court. There was no perjured testimony, bribery, or an attempt to have someone "improperly" influence the bankruptcy judge. There is no evidence that the bankruptcy court acted in any way other than impartially. Because there was a complaint for abandonment, a non-opposition by the trustee, and encumbrances in excess of $1 million, the judicial machinery of the bankruptcy court operated in its normal manner. See Toscano, 441 F.2d at 933 (quoting Moore's Federal Practice)(fraud exists when there is a scheme to prevent the judge from his/her task impartially).

        Even though the motion for abandonment stated that the property had an appraised value from the Fairbanks North Star Borough of only $397,825.00, the property had been scheduled for $1.2 million. The listing of a lower amount does not call into question the integrity of the bankruptcy court's decision. If anything, this court should assume that the bankruptcy court was aware of both the appraisal for $397,000 and the valuation by the debtor of $1.2 million. In the absence of evidence to the contrary, courts of appeal should assume that the lower courts are aware of the evidence in the records before it, particularly with respect to assets that comprise over seventy-five percent of the assets in the bankruptcy estate.

        The position of the trustee and the ad hoc committee of creditors seems to be that a fraud on the bankruptcy court was committed because the trustee was not given perfect information. Had the trustee known about the GLPA, the lawsuit

2 ABR 449 by Donna Aiello, etc., she says that things would have been different. First, the failure to make full disclosure to an opponent in litigation does not create a fraud on the bankruptcy court. Such a case may create a fraud on the party, but it does not create a fraud on the court. See 11 Wright & Miller § 2870, at 253-54; 7 Moore's Federal Practice para. 60.33, at 60-360 to 60-362.

Second, there is not any evidence that anyone prevented the trustee from performing her own investigation into the true value of the asset and the amount of liens encumbering the asset. Even though the motion for abandonment only stated the value of the property at $397,000, the trustee knew the property had a quick sale value of $895,000, ER 79, at 60 (Deposition of Jeanette James); ER 79, exhibit 1 (listing of land for suggested price of $895,000). The trustee either knew or should have known that the debtor had scheduled the property for $1.2 million. The trustee admitted that she did not analyze the liens on the property. ER 79, at 97. The trustee decided not to file an objection, even though she started one. ER 79, at 59 and exhibit 2 (handwritten notes of draft of opposition); Id. at 49 (why the trustee stipulated to abandonment); ER 3 (non-opposition to abandonment). Finally, the trustee admitted that she did not require that her own personal standards be followed. ER 62, exhibit A para. 8. The trustee's inaction shows that any errors that were made were her own fault. See In Matter of Hunter, 76 B.R. 117, 119-20

   2 ABR 450 (Bankr. D. Ore. 1987)(abandonment not set aside because the security interest had been scheduled and the trustee had the opportunity to discover the potential transfer). Fraud on the court does not exist when an adversary fails to require the other party to meet its burden of proof.

        The failure to inform the trustee about Donna Aiello's interest and/or litigation does not constitute fraud on the court. The record shows that the complaint for abandonment did state that Donna Aiello had a beneficial interest in the Palfy conservatorship. ER 1. While this statement, standing alone, does not give the trustee complete knowledge of Aiello's interest or her pending legal battles, it does put the trustee on some sort of "record" or "inquiry" notice that there is a potential title problem. It appears that a title search of the property, which is what the trustee says should have been done, would have turned up the Aiello interest and a potential title problem. The trustee's failure to require the moving party to prove its case cannot be cause for a later complaint that the movant committed a "fraud on the court."

        In short, the trustee and the ad hoc committee of creditors have failed to show that a fraud on the bankruptcy court was committed. Deceiving the trustee, if such a deception occurred, does not create an assault on the integritv of the judicial process. If any fraud was committed, it was committed against the trustee and the creditors. The trustee may have a separate remedy for this type of fraud. See 11

2 ABR 451 Wright & Miller, § 2870, at 253; 7 Moore's Federal Practice para. 60.33,.at 60-361 to 60-362. This issue, however, is not before this court.

CONCLUSION

The court's decision to affirm the bankruptcy court should not imply approval of what occurred in this case. Title to the land could still be clouded. Merely by allowing the property to return to the hands of the debtor does not mean that any prior liens, and arguably interests, in the property are affected. See Polumbo, 271 F.Supp. at 643. Perhaps Donna Aiello and others would be successful in a quite title action in state court.

The complaint for abandonment could have been drafted in a more forthright manner. Perhaps the bankruptcy judge viewed the $397,000 amount as skeptically as this court. Had counsel attempted to tell this court that a piece of property was worth $397,000 when it was scheduled for $1.2 million, this court may have imposed sanctions.

This court is affirming the decision of the bankruptcy court because of the well-settled principles of law and the record before it. The record in this case indicates that at the time of the abandonment, the property was over encumbered. The abandonment order must therefore stand unless it is void ab initio. The only two arguments raised on appeal which could cause the judgment to be void are a violation of the automatic

2 ABR 452 stay and a fraud on the court. In this case, there was no violation of the automatic stay and there was no fraud on the court. The judgment of the bankruptcy court must therefore be AFFIRMED.

Dated this 28 day of June, 1989.

cc:	B. Jackson
	J. Hendrickson
	R. Clark
	G. LaParle
	P. Aschenbrenner
	G. Ballou
	A. Robson
	M. Zegar
	G. Tans (HUGHES)
	B. Donnellan
	W. Artus (ARTUS)
	Bankruptcy Clerk
	Judge Holland (#)

N O T E S:

2 ABR 432 1. The Background section has been created from the Court's independent review of the record. The Order denying appellee's motions to strike is incorporated herein by reference.

2 ABR 432 2. Unless otherwise indicated, the excerpts of record refer to the numbered documents filed with the district court under the heading Ray Clark v. Jeanette James.

2 ABR 432 3. In an 1977 appraisal, the property was appraised at $1,290,000.00. ER 124, exhibit 1. In March, 1980, the property was appraised at $1,200,000.00. ER 124, exhibit 4. The trustee did not trust appraisals because she thought an appraisal represented a value for financing purposes rather than the amount a buyer is willing to pay for a parcel of land. ER 79, at 19 and 94.

2 ABR 433 4. The low market value is attributed to high interest rates and a soft real estate market. ER 1.

2 ABR 433 5. The amended complaint referenced all of the exhibits attached to the original complaint. The amended complaint also references the purported assignment of Donna Aiello's claim. ER 6, at 4; see also ER 1, exhibit E (copy of purported assignment of claim).

The Alaska Supreme Court set aside Palfy's attempt to transfer Aiello's beneficial interest. Aiello v. Clark, 680 P.2d 1162 (Alaska 1984). The opinion of the supreme court describes the Palfy-Aiello business relationship.

2 ABR 434 6. In an affidavit, the trustee stated as follows:

When a complaint or motion for relief from stay, abandonment or sale of real property is filed with the bankruptcy court, it is proper to get a preliminary title report or litigation report and file it with the court to show that all parties of interest have been named in the action or served. (See 11 U.S.C. 554, B.R. 6007)

ER 62, exhibit A para. 8. While this Court does not believe the trustee is competent to testify to the proper bankruptcy procedure or that this statement is a statement of fact, the Court finds it significant that the trustee did not ensure compliance with her own standards. Despite the failure to follow the appropriate "standard," the trustee did not object, In addition, there is nothing in the record indicating that the trustee undertook an independent investigation.

2 ABR 435 7. The business relationship is discussed below at page 6.

2 ABR 439 8. The legislative history to § 554 indicates that property may be abandoned to "any party with a possessory interest in the property abandoned." See In re Butler, 51 B.R. 261, 265 (Bankr. D.D.C. 1984)(quoting S.Rep. No. 595, 95th Cong., 2d Sess. 92 (1978)). By inserting the phrase "abandoned to the debtor," Congress lent explicit statutory support to the gloss placed on the statute by legislative history. See Id. Thus, abandoned property will be returned to the debtor unless some other party has a possessory interest that should be given precedence over the debtor's residuary rights. See id.

2 ABR 439 9. It would appear to be an a fortiori proposition that the ability of the debtor to pass title to an asset would be subject to the common law principle that one cannot pass a better title than that which he has. See Wooden-Ware v. United States, 106 U.S. 432, 435 (1882)("It is plain that by purchase from the wrong-doer defendant did not acquire any better title to the property than the vendor had."); see genera1ly R. Boyer Survey of the Law of Property 712-13 (3rd ed. 1981).

2 ABR 440 10 In the case of In re Roberts, 460 F.Supp. 33 (N.D. Ga. 1978), however, the bankruptcy court ruled on a creditor's claim despite the existence of a prior abandonment order. See Matter of Lintz West Side Lumber, Inc., 655 F.2d 786, 790 n.4 (7th Cir. 1981).

Another exception might exist for cases in which a hazard is identified and the abandonment would directly contravene state or federal law designed to protect public health and safety. See In re Brio Refining, Inc., 86 B.R. 487, 489-90 (N.D. Tex. 1988); see also Midlantic Nat'l Bank v. New Jersey Dept. of Environmental Protection, 474 U.S. 494-500-07 (1986)(affirming Third Circuit's decision that order of abandonment improper); Matter of Commonwealth Oil Refining Co., Inc., 805 F.2d 1175, 1185 (5th Cir. 1986), cert. denied, ___ U.S. ___, 107 S.Ct. 3228 (1987).

2 ABR 442 11. The exceptions to the general rule are not applicable in this case because the property was scheduled and it was not concealed from the trustee. The Lintz exceptions are also unavailable. Given the fact that an improvement now exists on what, at the time of the abandonment, was an unimproved parcel of land, unfair prejudice to the parties is present. The record before the bankruptcy court does not indicate that it made a mistake in abandoning the property; the property was a burden to the estate. See Lintz West Side Lumber, 655 F.2d at 791.

2 ABR 443 12 In her deposition, the trustee stated that it was the prerogative of a secured creditor to seek the return of an asset. ER 79, at 64.

2 ABR 446 13. The current version of Moore's Federal Practice contains an almost identical definition. 7 J. Moore & J. Lucas, Moore's Federal Practice para. 60.33, at 60-360 to 60-362 (2d ed. 1987).