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Bankruptcy Trustee Not Entitled to Claim Rent for Cattle Maintenance for Debtors Heirs - Lovald v. Falzerano

August 12, 2011

Our Rancho Cucamonga individual bankruptcy lawyers generally do not handle bankruptcies involving farms, because we're based in Anaheim and usually represent urban and suburban southern California residents. But we were interested to read a bankruptcy decision from the Eighth U.S. Circuit Court of Appeals on whether the heirs to a South Dakota farm estate owe rent to their father, who was maintaining the estate. In Lovald v. Falzerano, trustee John Lovald sued Alvin James Falzerano, the debtor, and most of his heirs for unjust enrichment, because the heirs were the owners of cattle that Falzerano was maintaining for them after they inherited the cattle from his wife. The Eighth Circuit agreed with the bankruptcy court that the heirs were not unjustly enriched entitled because Falzerano was entitled only to net profits from the cattle.

Falzerano was married to Theresa Falzerano before her death in 2001. She left 320 acres of the couple's ranch to her husband, and her remaining property, which included all of her cattle as well as personal property and some of the land, to her granddaughter and all of her children but one daughter. This was intentional, but to avoid having the will contested, the family made a settlement that, among other things, authorized Falzerano to care for the cattle on behalf of the heirs, and use profits from the cattle and land for his living expenses. This situation continued without incident for several years, until Falzerano filed for bankruptcy just after a legal judgment of $10,000 was entered against him. When Lovald was appointed trustee, he sued the heirs to recover the costs of rent for the pasture and the hay fed to the cattle by Falzerano, arguing that this money should be available to the bankruptcy estate. The bankruptcy court found no unjust enrichment because Falzerano was adequately compensated, the district court agreed and Lovald appealed.

On appeal, the Eighth found no clear error in the bankruptcy court's ruling that Falzerano was adequately compensated by the net profits from caring for the cattle. Nonetheless, it upheld the bankruptcy court's judgment on different grounds. Under the language of the bankruptcy code, the court said, the rent for Falzerano's care of the cattle was not property of the bankruptcy estate; it was a debt owed to the bankruptcy estate, which is governed by different language. That language says the debt should be payable to the trustee only if it is "matured, payable on demand, or payable on order." Under South Dakota law, the court said, an action to collect a disputed debt based on unjust enrichment cannot be any of those. Thus, the district and bankruptcy courts were correct to deny the trustee's claim on any rent for the care of the cattle.

As Fullerton personal bankruptcy attorneys, we're pleased with this decision because it allows families affected by bankruptcy to retain a bit more control over how they structure their affairs. The trustee's suit implicitly suggested that Falzerano was being exploited by his children and granddaughter for the cost of rent and hay, which they may have found upsetting. The situation may very well have been arranged so Falzerano could continue farming and the heirs could pursue different work. Most southern California families don't have cattle to worry about, but it's not difficult to imagine that a family might have an orchard, commercial property or something else that one member might hold in trust while making a small profit. As Seal Beach individual bankruptcy lawyers, we believe families in this situation should be able to decide these matters for themselves as long as they truly aren't cheating the bankruptcy estate.

Howard Law PC offers free, confidential case evaluations, so you can talk to us about your case and your legal rights at no risk or obligation. To set up a meeting, send us an email or call us today at 1-800-872-5925.

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