Shapiro v. Henson

A trustee may file a § 542(a) motion for turnover whether or not an entity has possession at the time the motion is filed.

On August 7, 2009 Barbara Henson filed a voluntary Chapter 7 Bankruptcy petition. At that time she had $6,955.19 in her bank account. After she filed her Chapter 7 Bankruptcy petition the bank refused to honor any of Henson’s checks. Brian Shaprio, the bankruptcy trustee assigned to Henson, asked Henson to turn over the funds in her bank account. Henson refused because she was no longer in possession of the funds. Shapiro filed a § 542(a) motion for turnover to recover the funds but the bankruptcy court denied the motion because Henson did not have possession of the funds at the time the motion was filed. Shapiro has appealed the bankruptcy court’s decision. The panel first looked at the statutory language to determine whether a § 542(a) motion can be denied when an entity no longer has possession of the property of interest. In looking at two phrases within the statute, “during the case” and “or the value of such property”, the Ninth Circuit determined that an individual need not be in possession of the property itself when the trustee files a motion for turnover. The “value of such property” was intended by Congress to mean the value of the property, not the property itself. Therefore, a motion for turnover can be filed regardless of possession of the property. The panel also looked at that practice of turnover before a statutory code was enacted. In these proceedings present possession of property was required for turnover. The panel rejected the Eighth Circuit's analysis holding that present possession is a requirement for a motion for turnover. In doing so, the panel holds that a trustee may seek turnover from an entity even if the entity does not have possession of the property at the time the motion for turnover is filed. REVERSED and REMANDED.