Judge Karlin

09-40406 Reed (Doc. # 46) - Document Text

SIGNED this 15 day of March, 2010.


In re: )
MICHAEL DALE REED and ) Case No. 09-40406
Debtors. )



This matter is before the Court on Debtors’ Motion To Reconsider 1 this Court’s Order
Granting Trustee’s Motion for Turnover. 2 Because the motion was filed only 8 days after the Order
was entered, it is thus timely.3 Although the Court’s Order dealt with property in addition to a tax
refund, Debtors seek reconsideration of only that part of the Order that grants the turnover of the tax
refund to the estate.

1Doc. 43.

2Doc. 40.

3The Court notes that Rule 9023 now allows such motions to be filed within 14 days after entry of an order.

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Debtors do not provide a statutory basis for their motion to reconsider, nor provide any
citation to case law regarding reconsideration, so the Court is unsure what legal basis they contend
exists to set aside the order. The Court will assume it was filed pursuant to Fed. R. Civ. P. 59(e) or

60.4 Because Debtor’s counsel elected to docket it as a Motion to Reconsider, the Court will treat
it as a motion for reconsideration under Fed. R. Civ. P. 59(e).5
Rule 9023 of the Federal Rules of Bankruptcy Procedure incorporates Rule 59 of the Federal


Rules of Civil Procedure, with one exception, and allows for alteration or amendment of judgmentson the grounds for relief set forth in Rule 60(b) of the Federal Rules of Civil Procedure, as
incorporated in Bankruptcy Rule 9024. 7 Grounds for relief include mistake, inadvertence, surprise,
excusable neglect, fraud or newly discovered evidence.

The legal standard for granting a motion for reconsideration is narrow. “A motion for
reconsideration should be granted only to correct manifest errors of law or to present newly
discovered evidence.” 8 “Such motions are not appropriate if the movant only wants the Court to
revisit issues already addressed or to hear new arguments or supporting facts that could have been

4 See D. Kan. Rule 7.3,which indicates that “motions seeking reconsideration of dispositive orders or judgments
must be filed pursuant to Fed. R. Civ. P. 59(e) or 60. Reconsideration of such an order or judgment will not be granted
under this rule.”

5 In re American Freight System, Inc., 168 B.R. 245, 246 (D. Kan. 1994).

6This exception, contained in Rule 9023, as amended December 1, 2009, is that such motions be filed within
14 days.

7See In re Colley, 814 F.2d 1008, 1010 (5th Cir. 1987).

8 Adams v. Reliance Standard Life Ins. Co., 225 F.3d 1179, n.5 (10th Cir. 2000) (internal quotations omitted).


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presented originally.”9

The only part of the Trustee’s initial motion still at issue surrounds Debtors’ 2008 federal tax
refund in the amount of $948.47. As previously stated on the record when the decision was
originally announced January 28, 2010, Debtors had checked the box on their return requesting the
IRS apply this refund to any future (i.e., post-petition) tax liability they might incur, rather than
refunding it to them. The import of that request would be to take what would otherwise be an estate
asset, and allow Debtors to in effect pre-pay a potential, but unknown, future tax liability with that
asset. On learning of this action, the Trustee made a request, by letter, to the IRS to turn over the
funds to the bankruptcy estate, and the IRS complied with that informal request after having first
refused to do the same when Debtors made a similar request.

Debtors essentially make three arguments in support of their motion to reconsider. They

The $948.47 was not “available to debtors” on the date of filing, but was instead in
the hands of the IRS, and thus did not constitute property of the estate because it was
a “contingent reversionary interest” not available to debtors until such time as they
filed a 2009 tax return and it was determined they were entitled to a refund in excess
of that $948.47;
The $948.47 was refunded to Debtors through “machinations of the Trustee,” and
since Debtors could not have demanded the return of the refund, the Trustee could
not, either, because he “stands in the shoes” of Debtors; and
It would not be equitable to reward the Trustee by sanctioning his “improper,
inequitable and possibly illegal act” in requesting the IRS refund the prepaid amount.
9 Zhou v. Pittsburg State Univ., 252 F. Supp. 2d 1194, 1199 (D. Kan. 2003) (citing Van Skiver v. U.S., 952 F.2d
1241, 1243 (10th Cir. 1991)).


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As the Trustee succinctly notes in his response, 10 Debtors previously raised each of these
arguments,11 and the Court rejected them. The Court incorporates herein its oral findings of fact and
conclusions of law, as well as the contents of the order entered on this issue.

Furthermore, the Court does not believe that a Trustee’s informal letter to the IRS requesting
turnover of what he in good faith believes is estate property, under the facts of this case, is
“improper, inequitable or illegal,” or constitutes improper “machinations.” A trustee in a Chapter
7 bankruptcy is charged with the statutory duty to gather the assets of the estate and manage those
assets to maximize their value to the estate. 12 Specifically, § 704(a)(1) requires that the trustee
“collect and reduce to money the property of the estate for which such trustee serves, and close such
estate as expeditiously as is compatible with the best interests of parties in interest.”

The Court found that Debtors had a contingent reversionary interest in the refund on the date
they filed their bankruptcy petition, and that the facts of this case were distinguishable from those
in In re Graves.13 Furthermore, there is nothing in the record demonstrating the Trustee acted with
anything but good faith in attempting to obtain assets of the estate, and the facts surrounding the
Trustee request were known to the Debtors prior to the issuance of the original decision. Debtors
sought no evidentiary hearing to present evidence of bad faith. Furthermore, and as the Trustee
noted, the IRS is well-equipped to say “no” to such requests when it deems them to be improper, or

10Doc. 40

11 See Doc. 33, Debtors’ letter brief in opposition to the Motion for Turnover, noting that the “trustee somehow
arrang[ed] a refund to us, without our agreement or request.” Debtors provide no other “newly discovered facts”
evidencing improper or illegal action by the trustee in their motion to reconsider.

12In re Rubesh, 2006 WL 1867678, 3 (10th Cir. BAP 2006).

13396 B.R. 70 (10th Cir. 2008).


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somehow outside the law.

As the Court further noted in its oral decision, it recognizes that this case presents a very
unusual set of facts that is unlikely to be repeated. Typically, when a taxpayer applies a tax refund
to the following year’s taxes, the IRS treats that as a tax payment for the following year and will not
return it to the taxpayer or anyone else. Because IRS voluntarily returned the property to Debtors,
Debtors’ contingent reversionary interest in the property that they held on the date of filing was thus
converted to actual possession of the property shortly after the bankruptcy was filed. Because the
contingent reversionary interest in the tax refund was property of the estate, it only follows that
money returned to Debtors as a result of that interest remains property of the estate, as well, and is
subject to turnover to the Trustee.

Because Debtors only raise arguments in support of their Motion for Reconsideration that
the Court has implicitly or actually considered, and rejected, and because they do not demonstrate
the existence of any mistake, inadvertence, surprise, excusable neglect, fraud or newly discovered
evidence (or suggest the existence of any intervening change in the law, the availability of new
evidence, or clear error that the Court must correct), their Motion to Reconsideration is denied. The
Court further finds that additional oral argument on this Motion will not materially assist the Court,
and for that reason, the hearing Debtors scheduled for March 23, 2010 is canceled.

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