Wissman v. Pittsburgh Nat. Bank, 90-2726
| Decision Date | 21 August 1991 |
| Docket Number | No. 90-2726,90-2726 |
| Parties | , 25 Collier Bankr.Cas.2d 605, 21 Bankr.Ct.Dec. 1697, Bankr. L. Rep. P 74,225 K. Dale WISSMAN, Sheryll Wissman, Plaintiffs-Appellants, v. PITTSBURGH NATIONAL BANK, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
David Allen Jividen, argued (Donna L. Crow, on brief), Bordas & Bordas, Wheeling, W. Va., for plaintiffs-appellants.
Gary Patrick Hunt, Tucker Arensberg, P.C., Pittsburgh, Pa., argued (Richard B. Tucker, III, Tucker Arensberg, P.C., Pittsburgh, Pa., Michael L. Bray, Steptoe & Johnson, Clarksburg, W. Va., on brief), for defendant-appellee.
Before HALL, Circuit Judge, HILL, Senior Circuit Judge of the United States Court of Appeals for the Eleventh Circuit, sitting by designation, and BOYLE, District Judge for the Eastern District of North Carolina, sitting by designation.
K. Dale Wissman and Sheryl Wissman appeal the district court's dismissal of their civil action against Pittsburgh National Bank ("Pittsburgh National"). We reverse and remand.
Several years before the initiation of this action, Mr. Wissman had been vice-president and chief financial officer of Alamco, an oil and gas business. During his employment with Alamco, the Wissmans obtained large personal loans from Pittsburgh National, Alamco's largest creditor. In December 1985, the Wissmans pledged 260,000 shares of stock they owned in Alamco as collateral for a personal loan of $500,000. Subsequently, allegedly with Pittsburgh National's advice and consent, Alamco discharged Wissman. Pittsburgh National did not foreclose on Wissman's pledged stock at that time, even though he had defaulted on his personal loans.
In 1988, Wissman became a consultant to Keelex, another oil and gas company, and worked with it on a plan to take over and restructure Alamco. After Keelex filed the required forms with the Securities and Exchange Commission, Pittsburgh National filed a foreclosure suit against Wissman and took control of 215,000 shares of his Alamco stock. As a result of this foreclosure, the Wissmans were forced into bankruptcy. They filed a voluntary Chapter 7 bankruptcy petition on October 7, 1988.
On Schedule B-2, filed with their petition, the Wissmans listed as an asset of the estate a "Possible claim against Pittsburgh National Bank." This "possible claim" was not yet pending as a lawsuit at the time they filed their bankruptcy petition. Because the value of the claim was unknown, the Wissmans entered a question mark instead of a value in the space provided on Schedule B-2. The Wissmans then listed the "possible claim" as exempt on Schedule B-4 and specified West Virginia Code § 38-10-4(e) as authority for the exemption. They also entered a question mark in the "value" column provided on this form. Pittsburgh National, a named creditor, did not object to the exemption of the "possible claim" against it. Moreover, neither the trustee nor any other party in interest objected to the exemption.
On March 20, 1990, while the bankruptcy proceeding was still pending, the Wissmans filed this action against Pittsburgh National, alleging breach of contract, bad faith banking practices and the tort of outrageous conduct. The claim stemmed from Pittsburgh National's foreclosure on the Wissmans' stock only after Keelex moved to take over Alamco. Pittsburgh National moved to dismiss alleging that the Wissmans' claims were property of the bankruptcy estate, subject to the control and direction of the trustee. The district court granted Pittsburgh National's motion to dismiss, holding that "the bankruptcy law requires a formal abandonment by the trustee of the asset even when it is claimed to be exempt because it is still property of the estate within the meaning of 11 U.S.C. § 541(a)(1)." Memorandum Opinion and Order at 2. Because the trustee had not abandoned the cause of action, the district court concluded that the Wissmans had no standing to pursue it. This appeal followed.
The parties agree that, pursuant to 11 U.S.C. § 541, the Wissmans' cause of action became property of the bankruptcy estate when the Wissmans filed their petition. 1 The dispute concerns whether and to what extent the Wissmans could exempt this cause of action, and, if they could, whether they had standing to pursue the action without the participation of, or the abandonment of the claim by, the bankruptcy trustee.
The Bankruptcy Reform Act of 1978, 11 U.S.C. § 522(l ) (1988), provides that The unequivocal language of the statute does not require abandonment by the trustee as a prerequisite to exemption by the debtor. Abandonment is the method used by the trustee to relieve the estate of "any property ... that is burdensome to the estate or that is of inconsequential value and benefit to the estate." 11 U.S.C. § 554. The trustee may refuse to abandon property that has value to the estate, but if the debtor is entitled by statute to an exemption in it, he may claim it without abandonment by the trustee.
Thus, if the Wissmans are otherwise entitled to exempt this cause of action, they may do so notwithstanding the trustee's refusal to abandon it. We conclude that the district court erred in holding that abandonment by the trustee was a prerequisite to the Wissmans' exemption of their claim and a prerequisite to the Wissmans' standing to pursue the action. 2
Next we consider whether the Wissmans followed proper procedure and had a legitimate statutory basis for their exemption. Under Bankruptcy Rule 4003, the debtor must list the assets he intends to claim as exempt. The trustee or any party in interest may then object to the claimed exemption within thirty days after the conclusion of the meeting of creditors (held pursuant to Bankruptcy Rule 2003(a)) or the last amendment to the exemption schedule, whichever occurs later. "Unless a party in interest objects, the property claimed as exempt ... is exempt." 11 U.S.C. § 522(l ); see also In re Kretzer, 48 B.R. 585, 587 (Bankr.D.Nev.1985); In re Wiesner, 39 B.R. 963, 965 (Bankr.W.D.Wis.1984); 3 Collier on Bankruptcy p 522.26 (15th ed. 1991).
The Wissmans listed their cause of action as an asset on Schedule B-2 and then claimed it as exempt on Schedule B-4. They listed West Virginia Code § 38-10-4(e) (1985) as authority for the exemption. No party in interest objected. Subsequently, the Wissmans filed an amended schedule of exemptions, thereby giving the trustee and creditors an additional 30-day period to object to the exemptions. Again, however, no one objected. The Wissmans followed procedures mandated by the bankruptcy rules to claim their cause of action as an asset and as an exemption; thus, if West Virginia Code § 38-10-4(e) provides a statutory basis for exemption of a cause of action, it is exempt.
West Virginia Code § 38-10-4(e) permits the exemption of a debtor's interest in "any property" up to $400, plus any unused amount of the $7,500 exemption provided under subsection (a). 3 The counterpart to this section in the federal Bankruptcy Code is § 522(d)(5). The Seventh Circuit has interpreted "any property" in the federal statute to mean "any property that is property of the estate--including, of course, causes of action arising under the federal Truth in Lending Act or similar state statutes." In re Smith, 640 F.2d 888, 891 (7th Cir.1981); see Augustine v. United States, 675 F.2d 582, 586 n. 8 (3d Cir.1982) ().
The above statutes are "wildcard" or general exemptions because any type of property can be exempted under them. Other statutes list particular kinds of property that can be exempted with or without a limit on the exemptible value. See, e.g., 11 U.S.C. § 522(d)(1)-(4), (6)-(11); W.Va.Code § 38-10-4(a)-(d), (f)-(k). The distinction is relevant in this case because we must decide whether the debtor may exempt an entire cause of action or just a portion of any potential recovery.
Though the Wissmans listed this cause of action as an asset and claimed it as exempt, they listed no value for the claim on Schedule B-2 or Schedule B-4. A cause of action, of course, is an asset that is not easily valued because there is no market where it is bought and sold. Thus, prior to judgment, a cause of action's value is unliquidated and contingent, and claiming a specific dollar exemption is, at best, speculation. A cause of action for unliquidated damages requires an investment of funds before a value can even be estimated. An action must either be pursued to a point where valuation by the parties is possible, or experts must be hired to calculate the potential market value. Here, no estimate of the value of the claim was made, consequently, the Wissmans were unable to list the value they claimed as exempt.
Nevertheless, the debtors argue that the cause of action automatically reverted to them because they listed the claim as an asset on their bankruptcy schedules, they claimed it as exempt, and no party in interest raised an objection. Moreover, they assert that their claim had no fair market value, and, as such, the value was less than the statutory maximum exemption. Therefore, the claim was properly exempted as a whole. Pittsburgh National argues that the statute does not provide for the exemption of the entire cause of action; therefore, the exemption claimed on Schedule B-4 did not result in the reversion of the entire claim to the Wissmans, notwithstanding their failure to object.
We do not agree with the Wissmans' argument that by claiming a value less than the statutory maximum, or no value at all, as in this case, the entire property...
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