Law Enforcement Officers Security Union

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
In re: 	) 	Bankruptcy No. 24-70277-JAD
)
LAW ENFORCEMENT OFFICERS 	) 	Chapter 7
SECURITY UNION, 	)
)
Debtor. 	)
X
)
ERIC E. BONONI, Trustee, 	)
) 	Related to ECF No. 92
Movant, 	)
)
-vs- 	)
)
LAW ENFORCEMENT OFFICERS 	)
SECURITY UNION, 	)
)
Respondent. 	)
X
)
ERIC E. BONONI, Trustee, 	) 	Related to ECF No. 127
)
Movant, 	)
)
-vs- 	)
)
LAW ENFORCEMENT OFFICERS 	)
SECURITY UNION AND 	)
INTERNATIONAL UNION, 	)
SECURITY, POLICE AND FIRE 	)
PROFESSIONALS OF AMERICA, 	)
)
Respondents. 	)
X
MEMORANDUM OPINION
I.
Bankruptcy courts are often required to decide not what is ideal, but what
the law permits and what the estate’s circumstances demand. Eric E. Bononi,
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Esq., in his capacity as Chapter 7 Trustee (the “Trustee”), seeks authority to sell
certain property of the bankruptcy estate consisting of claims and causes of
action (including avoidance, recovery, and preservation remedies under chapter
5 	of 	the 	Bankruptcy 	Code, 	together 	with 	related 	state 	and 	federal
theories)(collectively, the “Causes of Action”) free and clear of liens and interests
to the International Union, Security, Police and Fire Professionals of America
(“SPFPA”). 	The 	proposed 	purchase 	price 	is 	$145,000 	plus 	potential 	net
recoveries.
A group of non-debtor entities and individuals (the “Non-Debtor Parties”)
filed an objection. See Objection and Reservation of Rights to Motion to Sell
Property Free and Divested of Liens and Encumbrances, ECF No. 134 (the “Sale
Objection”).1 The Non-Debtor Parties are not creditors of the estate and do not
hold claims that will be affected by the distribution of estate property.
The question before the Court is whether Congress has authorized a
chapter 7 trustee to monetize litigation claims through a sale under 363(b) of the
Bankruptcy Code, and, if so, whether the Trustee has demonstrated sound
business judgment, fair process, and statutory compliance sufficient to warrant
approval. The Court answers both questions in the affirmative.
When a bankruptcy petition is filed, most of the debtor’s property becomes
property of the bankruptcy estate, and that property includes causes of action.
1 The Non-Debtor Parties include United Federation LEOS-PBA; LEOS-PBA; PROA; NUSPO;
UFSPSO; United Federation K9 Handlers; LEOSU-DC; LEOSU-VA; FPSOA; NUNSO; EOSU-CA;
SPSOA; PSONU; LEOSPU; United Federation LEOS-PBA Hawaii, Guam, Saipan, and American
Samoa; and Jean-Giles Brikener d/b/a Brik Unlimited LLC. See Sale Objection at 1.
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Artesanias Hacienda Real S.A. DE C.V. v. North Mill Capital, LLC (In re Wilton
Armetale, Inc.), 968 F.3d 273, 280 (3d Cir. 2020)(citations omitted). Congress
defined estate property broadly to include: “all legal or equitable interests of the
debtor in property as of the commencement of the case.” See 11 U.S.C. §
541(a)(1). The statute further provides that property of the estate includes: “[a]ny
interest in property that the trustee recovers under section … 550, 553, or 723
of this title[,]” “[a]ny interest in property preserved for the benefit of or ordered
transferred to the estate under section 510(c) or 551 of this title[,]” and “[a]ny
interest in property that the estate acquires after the commencement of the
case.” See §§ 541(a)(3), (4), & (7).
These 	provisions 	confirm 	that 	avoidance 	recoveries 	and 	preserved
transfers are not abstract statutory powers; once recovered or preserved, they
become property of the estate for distribution under the Code’s priority scheme.
See 11 U.S.C. § 551 (providing that avoided transfers are automatically preserved
for the benefit of the estate so that recovered value is not captured by junior
interests). Congress then imposed on trustees a mandatory duty to “collect and
reduce to money the property of the estate for which such trustee serves[.]” 11
U.S.C. § 704(a)(1). To carry out that duty, Congress authorized trustees to “use,
sell, or lease, other than in the ordinary course of business, property of the
estate[.]” 11 U.S.C. § 363(b)(1).
Read 	together, 	these 	provisions 	reflect 	a 	coherent 	statutory 	design:
litigation claims and recoveries are estate property; trustees must convert estate
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property to value; and section 363 provides a mechanism for liquidation when
supported by sound judgment and adequate safeguards.
The Sale Objection filed by the Non-Debtor Parties asserts that the Trustee
cannot transfer avoidance powers or auction off his statutory role. See Sale
Objection ¶¶ 31-34. The proposed transaction does neither; it transfers specific
litigation claims as estate assets while preserving the estate’s economic interest
in any net recovery and preserving this Court’s supervisory authority over their
compromise and administration.
Because courts have long permitted trustees to monetize litigation rights
when doing so maximizes value for creditors, this Court finds that the Trustee’s
proposed sale of the Causes of Action is proper and any objections to the same
shall be overruled.
II.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157. This
matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (N), and (O). Venue is
proper.
III.
The Debtor commenced this case by filing a voluntary petition under
chapter 7 of the Bankruptcy Code on July 8, 2024. Eric E. Bononi, Esq. was
appointed as the Chapter 7 Trustee.
In administering the bankruptcy estate, the Trustee identified the Causes
of Action, which include potential avoidance actions, recovery and preservation
remedies under chapter 5 of the Bankruptcy Code, and related equitable and
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common-law theories. The Trustee investigated these claims and participated in
mediation efforts with an intent to monetize the estate’s interests.
SPFPA offered to purchase the Causes of Action for $145,000 plus net
recoveries, subject to higher and better bids and Court approval. The Trustee
represents that the offer constitutes the highest and best value reasonably
obtainable for the estate and that SPFPA has acted in good faith.
Under the Purchase Agreement,2 SPFPA is authorized to prosecute the
Causes of Action as assignee of the estate. Any net recovery constitutes property
of the estate and must be remitted to the Trustee for distribution in accordance
with the Bankruptcy Code. SPFPA will bear litigation costs in the first instance
and may seek reimbursement or compensation only pursuant to section 503(b)
of the Bankruptcy Code. Any compromise or settlement of the Causes of Action
requires prior approval by this Court. See Purchase Agreement at § 5.
The Non-Debtor Parties object to the proposed sale. The Non-Debtor
Parties are themselves not creditors, do not hold claims against the estate, and
will receive no distribution from estate assets. Their objection arises from their
status as litigation targets and from their dissatisfaction that the Trustee elected
to pursue a transaction that promises greater recovery for the estate than the
proposed “Settlement Agreement and Release[,]”3 which they prefer.
2 The “Purchase Agreement” is attached as Exhibit 1 to the Motion to Sell Property Free and
Divested of Liens and Encumbrances, ECF No. 127 (the “Sale Motion”).
3 The “Settlement Agreement and Release” (the “Proposed Settlement”) is attached as Exhibit A
to the Motion to Approve Settlement, ECF No. 92.
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Bankruptcy standing is limited to aggrieved persons whose pecuniary
interests 	are 	directly 	and 	adversely 	affected 	by 	the 	order 	at 	issue. 	In 	re
Combustion Eng’g, Inc., 391 F.3d 190, 214 (3d Cir. 2004). This doctrine narrows
participation in bankruptcy proceedings to those with a direct financial stake in
the outcome and promotes the efficient administration of the estate.
The Non-Debtor Parties do not satisfy that standard. They possess no
ownership 	interest 	in 	the 	Causes 	of 	Action 	and 	no 	right 	to 	control 	their
disposition. They are not creditors and have no entitlement to share in estate
distributions. Their interest is adversarial rather than pecuniary; they seek to
extinguish or limit claims asserted against them. A defendant’s desire, in and of
itself, 	to 	avoid 	liability 	does 	not 	constitute 	a 	legally 	protected 	interest 	for
purposes of standing to object to the sale of the Causes of Action.
Courts consistently hold that prospective purchasers and unsuccessful
bidders lack standing to challenge bankruptcy sales because the statutory
scheme governing estate asset disposition protects the estate and its creditors,
not disappointed bidders. See, e.g., Davis v. Seidler (In re HST Gathering Co.),
125 B.R. 466, 467–68 (W.D. Tex. 1991). The same principle applies with even
greater force where, as here, the objectors are not merely disappointed bidders
but defendants seeking to suppress estate causes of action.
Further, the sale does not alter the Non-Debtor Parties’ legal rights. The
assignment 	of 	the 	Causes 	of 	Action 	does 	not 	expand 	the 	claims, 	modify
applicable law, or limit any defenses. The Non-Debtor Parties remain free to
assert all substantive defenses in any subsequent litigation. The transaction
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merely changes the identity and resources of the party prosecuting the claims.
A preference that claims not be pursued (or not be pursued by a party capable
of funding litigation) does not by itself create a pecuniary interest cognizable
under existing bankruptcy standing doctrine. Cf. Truck Ins. Exchange v. Kaiser
Gypsum Co., 602 U.S. 268 (2024) (recognizing standing where a bankruptcy
order directly affected an insurer’s contractual rights and financial obligations).
Here, by contrast, the proposed sale does not alter the Non-Debtor Parties’ legal
rights or defenses but merely permits estate claims to be pursued by an assignee.
Permitting litigation targets to object to the disposition of estate causes of
action simply because they prefer an early exit from litigation would invert the
Trustee’s fiduciary duty and undermine the Code’s objective of maximizing value
for creditors. The Bankruptcy Code empowers the Trustee to evaluate competing
proposals and select the course that best serves the estate. Parties whose only
stake is minimizing their own liability fall outside the zone of interests that are
sufficient to confer standing to object to the sale.
Notwithstanding the absence of standing, the Court afforded the Non-
Debtor Parties a full opportunity to submit a higher and better bid for the Causes
of Action. They declined to do so and instead urged approval of the Proposed
Settlement, which would yield less value to the estate.
Although 	the 	Non-Debtor 	Parties 	lack 	standing, 	the 	Court 	has
nevertheless reviewed and considered their written objection in fulfilling the
Court’s independent duty to evaluate the Trustee’s proposed disposition of estate
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property and to ensure that the transaction is fair, reasonable, and in the best
interests of the estate. 	That analysis follows below.
IV.
Section 363(b)(1) of the Bankruptcy Code supplies the principal statutory
mechanism by which a trustee converts estate property into value. It provides
that, after notice and a hearing, a trustee may “use, sell, or lease, other than in
the ordinary course of business, property of the estate[.]” 11 U.S.C. § 363(b)(1).
This authority implements the trustee’s fiduciary obligation to marshal and
monetize estate assets, consistent with the trustee’s role as “the representative
of the estate[,]” 11 U.S.C. § 323(a), and the statutory duty to “collect and reduce
to money the property of the estate[,]” § 704(a)(1).
Because the disposition of estate property affects creditor recoveries, the
Court must ensure that the proposed transaction reflects sound judgment and
fair process. In the Third Circuit, approval requires a demonstrated business
justification, adequate notice, fair value, and good faith. See In re Shubh Hotels
Pittsburgh, LLC, 439 B.R. 637, 639 (Bankr. W.D.Pa. 2010)(“sound business
purpose” justifying debtor-in-possession’s contemplated action required in § 363
context); In re Abbotts Dairies of Pa., Inc., 788 F.2d 143, 149-50 (3d Cir.
1986)(authorization 	of 	sale 	pursuant 	to 	§ 	363(b)(1) 	requires 	finding 	of
purchaser’s good faith). Good faith “speaks to the integrity of [the purchaser’s]
conduct in the course of the sale proceedings[,]” id. at 147, and the bankruptcy
court 	must 	not 	merely 	rubber 	stamp 	the 	trustee’s 	proposal, 	but 	must
independently determine that the transaction serves the estate’s best interests.
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Consumer News & Bus. Channel P’ship v. Fin. News Network Inc. (In re Fin.
News Network Inc.), 980 F.2d 165, 169 (2d Cir. 1992)(“the bankruptcy court's
principal responsibility . . . is to secure for the benefit of creditors the best
possible bid”).
Where appropriate, section 363 also permits property to be sold “free and
clear of any interest” of another entity if one of the statutory conditions is
satisfied. 11 U.S.C. § 363(f). This mechanism allows the trustee to convey estate
property unencumbered while preserving any valid interests by transferring said
interests to the sale proceeds.
V.
Litigation 	claims 	and 	avoidance 	recoveries 	fall 	squarely 	within 	the
Bankruptcy Code’s expansive definition of estate property. Section 541(a)(1)
includes “all legal or equitable interests of the debtor in property as of the
commencement 	of 	the 	case.” 	Sections 	541(a)(3) 	and 	(4) 	include 	interests
recovered or preserved through avoidance and preservation provisions, while
section 	541(a)(7) 	encompasses 	property 	interests 	the 	estate 	acquires
postpetition. Avoidance remedies thus function to recover or preserve value for
the estate, and once recovered or preserved, that value belongs to the estate for
distribution under the Code’s priority scheme. See 11 U.S.C. § 551 (providing
that avoided transfers are preserved for the benefit of the estate so that recovered
value remains available for equitable distribution).
The trustee is charged with converting that value into a recovery for
creditors. Section 704(a)(1) requires the trustee to “collect and reduce to money
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the property of the estate[.]” Section 363(b) supplies the mechanism for doing so
by authorizing the trustee to use or sell estate property outside the ordinary
course. Nothing in the statutory text excludes litigation claims from the purview
of the liquidation tools available to the trustee.
The 	Non-Debtor 	Parties 	characterize 	avoidance 	actions 	as 	non-
transferable 	“powers.” 	That 	characterization 	misconceives 	their 	function.
Avoidance authority exists to recover or preserve value for the estate; the
economic interest lies in the recovery itself, not in the trustee’s office. While the
trustee 	alone 	holds 	statutory 	authority 	to 	invoke 	avoidance 	remedies, 	the
economic 	value 	produced 	by 	those 	remedies 	belongs 	to 	the 	estate. 	The
transaction proposed here monetizes that economic interest while preserving the
estate’s entitlement to any net recovery.
This conclusion is reinforced by Congress’s express recognition that estate
value may be realized through creditor initiative under court supervision. Section
503(b)(3)(B) authorizes administrative expense reimbursement for “the actual,
necessary expenses … incurred by … a creditor that recovers, after the court’s
approval, for the benefit of the estate any property transferred or concealed by
the debtor[.]” 11 U.S.C. § 503(b)(3)(B). By conditioning recovery on prior court
approval and requiring that any recovery be “for the benefit of the estate,” the
statute confirms that the Bankruptcy Code contemplates circumstances in
which parties other than the trustee may, with judicial authorization, pursue
recovery of estate value while preserving the estate’s entitlement to the proceeds.
Read in harmony with sections 541, 363, 551, and 704, this provision reflects a
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coherent statutory design: estate value should not be lost merely because the
fiduciary 	lacks 	resources 	to 	pursue 	it, 	and 	court-supervised 	creditor
participation may be employed to realize that value for equitable distribution
under the Code.
The Third Circuit’s decision in Official Committee of Unsecured Creditors
of Cybergenics Corp. v. Chinery addressed whether a bankruptcy court may
authorize 	a 	creditors’ 	committee 	to 	prosecute 	avoidance 	actions 	when 	the
fiduciary refuses. 330 F.3d 548 (3d Cir. 2003) (en banc). In answering that
question, the court emphasized that avoidance actions are meant to benefit the
estate and its creditors and that court-authorized prosecution may be consistent
with the Code’s structure and purpose. Id. at 568–69. Cybergenics did not
address the sale or assignment of such claims; its reasoning instead underscores
that estate benefit and judicial supervision are paramount considerations.
The 	Third 	Circuit 	in In 	re 	Wilton 	Armetale, 	Inc. further 	clarified 	the
statutory 	framework 	governing 	estate 	causes 	of 	action. 	In 	the 	bankruptcy
context, the relevant inquiry is whether a party has statutory authority to pursue
a 	claim 	belonging 	to 	the 	estate. 	968 	F.3d 	at 	283. 	The 	Bankruptcy 	Code
centralizes 	control 	of 	estate 	claims 	in 	the 	trustee 	to 	ensure 	orderly
administration and equitable distribution. Id. at 283-84 (“ . . . the Bankruptcy
Code makes a creditor's derivative causes of action property of the estate. From
there, the trustee decides how best to manage them for the benefit of all
creditors”).
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At the same time, that authority is not immutable. It is true that once a
claim becomes estate property, “the Bankruptcy Code gives the trustee, and only
the trustee, the statutory authority to pursue it.” Id. at 280. But that authority
may be relinquished in defined circumstances. If the trustee abandons the claim,
the claim reverts to the prior holder. Id. at 284 (citation omitted). Courts may
authorize other parties to pursue estate claims for the benefit of the estate under
certain circumstances. Cybergenics at 566-67. These mechanisms reflect the
Code’s structured flexibility: while the trustee remains the estate’s fiduciary
representative, control over claims may be relinquished when doing so preserves
estate value and protects creditor interests.
From a textual standpoint, section 554 authorizes a trustee, after notice
and a hearing, to abandon property that is “burdensome to the estate or … of
inconsequential value and benefit to the estate.” 11 U.S.C. § 554(a). One might
argue that abandonment in exchange for consideration is inconsistent with this
language 	because 	property 	capable 	of 	generating 	value 	cannot 	be
inconsequential. That reading, however, is unduly narrow. An asset may possess
theoretical value yet remain functionally worthless to a chapter 7 estate if the
trustee lacks the resources necessary to realize that value. Litigation claims
frequently illustrate this reality. A cause of action may have merit, but if the
estate cannot fund investigation, prosecution, and collection, the claim may be
burdensome in administration and of inconsequential practical benefit unless
the trustee can structure a means to extract its value.
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Nothing in section 554 suggests Congress intended to prohibit trustees
from realizing value under such circumstances. To the contrary, when section
554 is read alongside the Code’s broader provisions, a coherent statutory design
emerges. Section 541 defines estate property in sweeping terms, including
recoveries obtained under section 550 and transfers preserved under section
551. Section 363 authorizes the trustee to “use, sell, or lease” estate property
outside the ordinary course of business. Section 704 requires the trustee to
collect and reduce estate property to money. Read together, these provisions
favor maximization of value for creditors rather than formalistic limitations that
would compel trustees to abandon potentially valuable claims without recovery.
Bankruptcy courts likewise look to the substance of a transaction rather
than its form. See Cohen v. KB Mezzanine Fund II, LP (In re SubMicron Systems
Corp.), 432 F.3d 448, 454 (3d Cir. 2006) (bankruptcy courts have “equitable
authority to ensure ‘that substance will not give way to form, that technical
considerations will not prevent substantial justice from being done.’ ” (citation
omitted)). Whether characterized as abandonment, relinquishment, a structured
sale, 	or 	court-authorized 	prosecution 	for 	the 	estate’s 	benefit, 	the 	essential
inquiry is whether the arrangement preserves and realizes value for the estate
while 	protecting 	the 	integrity 	of 	the 	distribution 	scheme 	set 	forth 	in 	the
Bankruptcy Code.
That is precisely what occurs here. The estate lacks the resources to
prosecute the claims independently. A creditor is willing to assume the risk and
expense 	of 	litigation. 	Any 	recoveries 	will 	be 	remitted 	to 	the 	Trustee 	and
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distributed in accordance with the Bankruptcy Code. The arrangement therefore
transforms claims that were, for all practical purposes, burdensome and of
inconsequential value or benefit into immediate cash value of $145,000 plus
additional potential recovery for all creditors.
This result cannot be ignored. The Bankruptcy Code does not require
trustees to abandon value; it empowers them to realize it for the benefit of
creditors. 	The 	present 	transaction 	operates 	squarely 	within 	that 	statutory
framework. The Trustee remains the estate’s fiduciary representative, while the
Court approves a structure designed to preserve estate value, ensure judicial
oversight, and direct any recoveries to the estate for distribution in accordance
with the Bankruptcy Code.
VI.
To be clear, this Court recognizes that the Court of Appeals for the Third
Circuit in Cybergenics wrote that “the fraudulent transfer claims, which state
law provided to Cybergenics’ creditors, were never assets of Cybergenics,” and
that the avoidance power itself “was likewise not an asset of Cybergenics.” 226
F.3d at 245. That language, however, arose in the context of determining whether
certain claims had been transferred in an asset sale, not whether avoidance
actions constitute property of the estate or may be transferred by a trustee. The
Third Circuit later clarified the limited reach of this passage, explaining that “. .
. Cybergenics does not hold that trustees cannot transfer causes of action. It
leaves that question open because the asset transfer at issue did not reach the
creditors’ claims.” In re Wilton Armetale, Inc., 968 F.3d at 285. Courts within
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and outside the Third Circuit have likewise recognized that the statements in
Cybergenics concerning avoidance powers were dicta and did not resolve the
transferability question. See Claridge Assocs., LLC v. Schepis (In re Pursuit
Capital Mgmt., LLC), 595 B.R. 631, 656–57 (Bankr. D. Del. 2018).
The court in Murray Metallurgical Coal Holdings, LLC undertook one of
the most comprehensive examinations of whether avoidance actions constitute
property of the estate and whether they may be sold or assigned. 623 B.R. 444
(Bankr. S.D. Ohio 2021). Surveying decades of conflicting authority, the court
recognized 	that 	some 	early 	decisions 	described 	avoidance 	powers 	as 	non-
transferable statutory rights rather than estate property. See, e.g., Robison v.
First Fin. Capital Mgmt. Corp. (In re Sweetwater), 55 B.R. 724, 731 (D. Utah
1985)(“The avoiding powers are not ‘property’ but a statutorily created power to
recover property”), aff’d in part and rev’d in part, 884 F.2d 1323 (10th Cir. 1989).
Yet Murray explained that subsequent jurisprudence has increasingly treated
avoidance actions as claims or causes of action that become part of the estate
by operation of section 541(a). 623 B.R. at 508–14. While acknowledging the
doctrinal divide, the court concluded that avoidance actions are not merely
abstract statutory powers; rather, they are interests brought into the estate by
operation of sections 541(a)(1), (a)(3), (a)(4), or (a)(7), depending upon the nature
and timing of the transfer at issue. Id. at 513.
Again, section 541(a)(1) includes within the estate “all legal or equitable
interests of the debtor in property as of the commencement of the case.” 11
U.S.C. § 541(a)(1). Courts have consistently held that causes of action constitute
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such interests. See, e.g., Parker v. Goodman (In re Parker), 499 F.3d 616, 624
(6th Cir. 2007); Bauer v. Commerce Union Bank, Clarksville, Tenn., 859 F.2d
438, 440–41 (6th Cir. 1988). Avoidance claims have repeatedly been described
as statutory causes of action. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33,
53 (1989). Consistent with this understanding, courts have held that fraudulent
transfer claims constitute property of the estate under section 541(a)(1). See
Morley v. Ontos, Inc. (In re Ontos, Inc.), 478 F.3d 427, 431 (1st Cir. 2007). To
the extent avoidance actions relate to prepetition transfers, they exist at the
commencement of the case and fall comfortably within section 541(a)(1).
Sections 541(a)(3) and (a)(4) reinforce this conclusion. Section 541(a)(3)
includes “[a]ny interest in property that the trustee recovers under section …
550,” while section 541(a)(4) includes interests preserved for the benefit of the
estate under section 551. 11 U.S.C. §§ 541(a)(3) & (4). Section 550, in turn,
authorizes recovery of avoided transfers “for the benefit of the estate[.]” 11 U.S.C.
§ 550(a). Although some courts have reasoned that these provisions bring only
recovered property into the estate and not the avoidance action itself, see Moyer
v. ABN Amro Mortg. Grp., Inc. (In re Feringa), 376 B.R. 614, 624–25 (Bankr.
W.D. Mich. 2007), the Supreme Court has described “the right to recover” an
avoidable transfer as property of the estate. United States v. Nordic Vill. Inc., 503
U.S. 30, 37 (1992), superseded by statute on other grounds as recognized in
United States v. Miller, 604 U.S. 518, 535 (2025). That reasoning supports the
conclusion that avoidance rights themselves constitute estate interests.
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Section 	541(a)(7) 	further 	confirms 	the 	breadth 	of 	estate 	property 	by
including 	“[a]ny 	interest 	in 	property 	that 	the 	estate 	acquires 	after 	the
commencement of the case.” 11 U.S.C. § 541(a)(7). Courts have relied on this
provision to hold that causes of action arising from the administration of the
estate (including avoidance claims arising postpetition) are property of the estate.
In re Murray Metallurgical Coal Holdings, LLC, 623 B.R. at 512–13; Smith v.
Morris R Greenhaw Oil & Gas, Inc. (In re Greenhaw Energy, Inc.), 359 B.R. 636,
642 	(Bankr. 	S.D. 	Tex. 	2007). 	This 	interpretation 	harmonizes 	the 	statutory
scheme by ensuring that property interests created through the operation of
bankruptcy law become part of the estate they are designed to benefit.
It also bears emphasis that avoidance actions under sections 547 and 548
are creatures of federal bankruptcy law and come into existence only upon the
commencement of a case. Outside of bankruptcy, no creditor or debtor possesses
the statutory authority to avoid preferential or fraudulent transfers under those
provisions. Because the bankruptcy estate itself is created at filing, and the
trustee’s avoiding authority becomes exercisable only at that moment, it is both
logical and textually consistent to regard these avoidance rights as interests
acquired by the estate postpetition.
Treating avoidance rights as estate property under section 541(a)(7) is
congruent 	with 	the 	Code’s 	structure 	and 	ensures 	that 	statutory 	remedies
designed to recapture value for creditors are themselves part of the estate whose
value they are intended to restore. This reading also aligns with Congress’s
recognition in section 503(b)(3)(B) that, with court approval, a creditor may
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recover property transferred by the debtor “for the benefit of the estate[;]” section
503(b)(3)(B) is clearly a provision that presupposes the existence of an estate-
owned avoidance right capable of being prosecuted by a party other than the
trustee in appropriate circumstances.
Finally, abandonment jurisprudence further supports the conclusion that
avoidance actions are property of the estate. Only property of the estate may be
abandoned under section 554. See 11 U.S.C. § 554(a). Courts have held that
once a trustee abandons a fraudulent transfer action, another party may pursue
it, implying that the claim itself was estate property prior to abandonment. See
Nat’l Am. Ins. Co. v. Ruppert Landscaping Co., 187 F.3d 439, 441 (4th Cir. 1999);
cf. Hatchett v. United States, 330 F.3d 875, 886 (6th Cir. 2003)(while trustee has
exclusive right to bring fraudulent conveyance action during bankruptcy case,
once the bankruptcy proceedings conclude, a creditor may assert fraudulent
conveyance claims). These authorities reinforce that avoidance actions are estate
interests, not merely abstract powers.
Taken together, the statutory text, Supreme Court guidance, and modern
appellate authority demonstrate that avoidance actions are not mere statutory
powers divorced from property concepts. Rather, they are claims or interests that
become part of the bankruptcy estate through the operation of section 541(a). To
the extent earlier decisions suggested otherwise, those statements either arose
in different contexts or have been clarified as non-binding dicta. Although this
conclusion may appear redundant in light of this Court’s earlier discussion in
Part V above, the Court emphasizes it here given the unsettled jurisprudence
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and 	the 	importance 	of 	grounding 	the 	analysis 	in 	the 	text, 	structure, 	and
purposes of the Bankruptcy Code.
VII.
The record reflects that the Trustee explored settlement of the claims
against the Non-Debtor Parties. The proposed compromise would yield only
$140,000 in exchange for a blanket release.
A bankruptcy trustee “has the duty to maximize the value of the estate.”
Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 352 (1985).
Courts 	must 	“assess 	and 	balance 	the 	value 	of 	the 	claim 	that 	is 	being
compromised against the value to the estate of the acceptance of the compromise
proposal[,]” considering the probability of success; difficulties in collection;
complexity of litigation and its expense, inconvenience, and delay; and the
paramount interests of creditors. Myers v. Martin (In re Martin), 91 F.3d 389,
393 (3d Cir. 1996).
When disposing of estate assets, bankruptcy courts must secure the best
outcome for creditors. See e.g., In re Fin. News Network Inc., 980 F.2d at 169.
The 	comparison 	between 	the 	proffered 	settlement 	and 	sale 	is
straightforward. The settlement would yield $140,000 and extinguish all claims.
The 	sale 	provides 	$145,000 	immediately 	and 	the 	potential 	for 	additional
recoveries for the estate. The sale thus yields greater immediate value and
preserves upside potential. Approval of the settlement would be inconsistent with
the 	Trustee’s 	fiduciary 	duty 	to 	maximize 	estate 	value. 	Under 	these
circumstances, the settlement will not be approved.
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VIII.
The 	Bankruptcy 	Code 	establishes 	a 	comprehensive 	framework 	for
collecting, preserving, and monetizing estate property for the benefit of creditors.
Litigation 	claims 	and 	avoidance 	recoveries 	fall 	within 	that 	framework. 	The
Trustee has demonstrated that the proposed sale represents a sound exercise of
business 	judgment, 	preserves 	estate 	benefit, 	and 	complies 	with 	statutory
requirements. Accordingly, the Sale Motion will be granted; and approval of the
Proposed Settlement will be denied. Orders shall be entered consistent with this
Memorandum Opinion.
Dated: 	February 27, 2026
Hon. Jeffery A. Deller
United States Bankruptcy Judge
Case Administrator to Mail to:
Debtor
Eric E. Bononi, Chapter 7 Trustee
Kirk B. Burkley, Esq., Counsel for the Debtor & the Non-Debtor Parties
J. David Garcia, Esq., Counsel to the SPFPA
Office of the United States Trustee
Hon. Jeff	ff	ff	ff	ff	ffffery A. Deller
FILED
CLERK
U.S. BANKRUPTCY
COURT - :'3$
2/27/26 11:57 am
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