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In re Townside Construction, Inc., Case No. 16-70629 (03/14/2018)

The Chapter 7 Trustee, the Bank creditor and the foreclosure trustee under certain deeds of trust filed a motion to approve a compromise and settlement whereby the Bank would pay a certain sum to the Trustee, after which the Trustee would convey certain real property  to the Bank and execute a general release of the Bank and foreclosure trustee releasing all claims against them, known and unknown, and accruing from the beginning of time through the date of the entry of the order approving the settlement. The Debtors objected to the motion asserting that certain causes of action were not property of the estates and that the Debtors were entitled to bring litigation against these parties without the Trustee's involvement.   As the scope of the definition of estate property under 11 U.S.C. § 541 is both comprehensive and far-reaching, the Court found that the causes of action alleged by the Debtors in these pending separate lawsuits were "sufficiently rooted" in the Debtors' pre-bankruptcy pasts with the Bank to fall within the  Segal v. Rochelle test, and that the alleged causes of action sufficiently flowed from the Debtors' prepetition assets such as to fall within the scope of Section 541.  The Court did not decide whether the settlement should be approved, reserving the issue until after the Trustee fulfills his statutory duties.

Wednesday, March 14, 2018
Burden of Proof
Property of the Estate