Thursday, November 29, 2012

In re Burgess case brief (brothel license revocation in bankruptcy)

 In re Burgess, (Bankr. D. NV 1999)

  • Issue:  Under §362, whether the debtor was entitled to a reversal of the revocation of his brothel license and damages depended upon whether the license was property of the debtor.

  • Holding: This court reversed the trial court’s decision that the brothel license is not property, but rather a “personal privilege.” Brothel license is property.

  • Reason:
  • It does not matter for the state law to name a right as “privilege.” The dispositive standard is it is treated as property for purpose of the federal bankruptcy law. It seems whether something is property is under de novo consideration for the bankruptcy courts, the state right seems irrelevant.
  • In this case, the brothel license has enormous value for the estate-otherwise no business left to reorganize under chapter 11.
  • If it is not the property, it will be against the goal of the Congress to encourage the reorganization.
  • §541(c). If the state law says that it is a property and is not transferable. Does the state law preclude the transfer of the property from the debtor to the estate? NO.
  • Underlying Sticks Defined by State Law
  • Pottow's take: State law defines the outlines of property. Whether they call it property or not is not determinative. However, if the state grants licenses for this, allows it to be transferable, etc., those are factors that the bankruptcy court considers. State law defines the bundle of sticks of the property contention.

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