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In re Shelbyville Road Shoppes, LLC

United States Court of Appeals, Sixth Circuit

January 5, 2015

In re: SHELBYVILLE ROAD SHOPPES, LLC, Debtor.
v.
COMMONWEALTH OF KENTUCKY TRANSPORTATION CABINET, Appellee WILLIAM W. LAWRENCE, as the Trustee for the Estate of Shelbyville Road Shoppes, LLC, Appellant,

 Argued, October 2, 2014

Page 790

Appeal from the United States District Court for the Western District of Kentucky at Louisville. No. 3:13-cv-00971--Charles R. Simpson III, District Judge.

ARGUED:

Robert W. Adams, III, ADAMS LAW GROUP, Louisville, Kentucky, for Appellant. Bradley S. Salyer, MORGAN & POTTINGER, Louisville, KY, for Appellee.

ON BRIEF:

Robert W. Adams, III, ADAMS LAW GROUP, Louisville, Kentucky, for Appellant. Bradley S. Salyer, MORGAN & POTTINGER, Louisville, KY, for Appellee.

Before: GUY, ROGERS, and DONALD, Circuit Judges.

OPINION

Page 791

ROGERS, Circuit Judge.

This case involves whether a Chapter 7 bankruptcy debtor's trustee can bring into the bankruptcy estate a " good faith" deposit made by the debtor's assignor with

Page 792

respect to a proposed real estate purchase from the Commonwealth of Kentucky. The trustee, William Lawrence, seeks the return of a good faith deposit paid by Eagle Development, LLC to the Commonwealth of Kentucky Transportation Cabinet as part of a Purchase Agreement for the purchase of land entered into on July 18, 2007. Eagle Development later assigned the Purchase Agreement to the debtor, Shelbyville Road Shoppes, LLC. Two days before the expiration of the Purchase Agreement's closing period, the debtor voluntarily filed for Chapter 7 relief, which led to the Agreement's deemed rejection pursuant to 11 U.S.C. § 365(d)(1). The trustee subsequently requested return of the deposit in bankruptcy court, claiming that the deposit constituted " property" of the bankruptcy estate under 11 U.S.C. § 541, and was thus subject to turnover under 11 U.S.C. § 542. Both the bankruptcy court and the district court rejected the trustee's turnover request. Because the debtor did not possess either a legal or an equitable property interest in the good faith deposit at the time the debtor filed a voluntary petition for Chapter 7 relief, the district court properly rejected the trustee's turnover request.

On July 18, 2007, a " Purchase Agreement - Public Sale" was entered into between Eagle Development, LLC and the Commonwealth of Kentucky Transportation Cabinet, in which Eagle agreed to pay the sum of $4,812,874.65 to purchase certain property in Louisville, Kentucky owned by the Cabinet. Pursuant to the Agreement, Eagle paid a good faith deposit to the Cabinet in the sum of $962,574.93. The check was made payable to " KY STATE TREASURER." It was later deposited into a non-interest bearing account maintained by the Kentucky Finance and Administration Cabinet. On August 8, 2007, the Agreement was assigned by Eagle to Shelbyville Road Shoppes, LLC, the bankruptcy debtor in this case.

The Agreement provides:

As required by the terms of this sale, a good faith deposit is hereby made in the amount of $962,574.93 to be held in a special deposit trust fund by the Transportation Cabinet, Division of Right of Way & Utilities, pending the arrangement of a closing date to be no sooner than 60 days from the date written notice is given by Transportation Cabinet to Purchaser, unless otherwise agreed upon by the Purchaser and Transportation Cabinet, at which time, upon delivery of the deed, the balance of $3,850,299.72 will be due and payable. The conveyance will be by Special Warranty Deed.
. . . The Purchaser agrees that the above mentioned good faith deposit will be forfeited to the Seller as liquidated damages is [sic] the Purchaser fails to consummate this sales transaction as agreed herein.

On July 13, 2009, the debtor and the Cabinet executed an addendum to the Agreement that, in pertinent part, extended the deadline for the " Purchaser to complete the acquisition of the subject property for one (1) year . . . in order to allow the Purchaser to seek any requested change in the current zoning of the property." The addendum further provided for one additional six-month extension beyond the one year period, subject to the " approval and at the discretion of both the Purchaser and Seller."

On January 11, 2011, two days before the expiration of the eighteen-month extension to close the transaction, the debtor filed a voluntary petition for Chapter 7 relief. William W. Lawrence was ...


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