In re Daly

• Decision Date: 06 October 2005
• Docket Number: No. 5:02-BK-00605.,5:02-BK-00605.
• Citation: 344 B.R. 304
• Parties: In re Arthur Terry DALY, Debtor. Robert N. Opel, Trustee, Movant, v. Arthur Terry Daly, Respondent. New York Life Insurance Co., Movant, v. Arthur Terry Daly, Respondent.
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

344 B.R. 304

In re Arthur Terry DALY, Debtor. Robert N. Opel, Trustee, Movant, v. Arthur Terry Daly, Respondent. New York Life Insurance Co., Movant, v. Arthur Terry Daly, Respondent.

No. 5:02-BK-00605.

United States Bankruptcy Court, M.D. Pennsylvania.

October 6, 2005.

COPYRIGHT MATERIAL OMITTED

Michael J. Burke, David J. Harris, Brad Kurlancheek, Esq., Brian E. Manning, Ernest A. Sposto, Jr., Philadelphia, PA, for Debtor.

Ernest A. Sposto, Jr., Scranton, PA, for Movant.

OPINION

JOHN J. THOMAS, Bankruptcy Judge.

STATEMENT OF FACTS & PROCEDURAL HISTORY

In 1989, Debtor purchased a disability insurance policy from New York Life Insurance Company (NYL). Debtor made a claim in July 1993 against the policy. NYL paid Debtor $400 a month for approximately four years before it terminated the policy.

On October 20, 1995, NYL filed a complaint in the Eastern District of Pennsylvania against the Debtor seeking the return of monies paid under the policy. Debtor responded, in part, by filing a counterclaim in an attempt to claim the policy's benefits.

Without the assistance of counsel, Debtor¹ filed a voluntary Chapter 13 petition on February 5, 2002. Of the documents filed in tandem with his petition, a handwritten notation was made on lined yellow paper that Debtor's Schedule B encompassed "$400 in Fleet Bank" and "$2,700 in HSBC Bank." The Court has not identified any other declaration of property ownership in the documents filed with Debtor's original Chapter 13 petition. Included with his petition was a handwritten document with a declaration under the heading of "Schedule C" that "All property listed I declare as exempt." See Doc. 1 at 2(3). Although Debtor did not disclose any additional assets in his "Schedule C", he did list on his Statement of Financial Affairs (Official Form 7) three causes of action to which he is or was a party to within one year immediately preceding the filing of his case. See Doc. 1. These actions were listed as "Daly vs Dr. Fried Phil CCP Dec 517,01", "Daly v. Dr Richmond N.Y. County", and "NY Life v. Daly USDC E District Pa." See id. Under the "NY Life v. Daly USDC E District Pa" heading, Debtor further additionally listed "1st 2-negligence cases" and "3rd Disability case". See id.

On July 29, 2002, Debtor filed a handwritten document entitled Debtor's Supplement "ADD" to Schedules and "ADD" to the matrix of creditors. See Doc. 52. Included in this document is the following passage:

In the USDC for the E Dist of Pa,

NY Life Ins Company vs

ATerryDaly Civil XN# 95-6702

Contested debt of Debtor $167,000

Contested asset of Debtor $1,000,000

Based on a Private Disability

Insurance Policy

Lawyers

Debtor Rep. N.Y. Life

Jeff Johnson, Esq Jeff Dailey

See id. at 1.

On August 9, 2002, Debtor filed a handwritten document with a primary heading of Amendment to Schedule A, Matrix of Creditors. See Doc. 60. This document contains a handwritten passage identical to the one written in the July 29, 2002 amendment.

Debtor's Chapter 13 case was dismissed on September 3, 2002. The case was reinstated on October 10, 2002.

Debtor's Chapter 13 was converted to a Chapter 7 on March 3, 2003 and Robert Opel was appointed soon after as the Interim Trustee.

Through the aid of an attorney, Debtor filed an amended petition and amended schedules on July 11, 2003. See Doc. 139. These amendments included a declaration on Schedule B that a number of lawsuits² involving Debtor and various entities, had a "Current Market Value of Debtor's Interest in Property, without Deducting any Secured Claim or Exemption" of "25,-000.00." On Schedule C, Debtor attributed "25,000.00" as the collective "Value of Claimed Exemption" of these causes of actions. He also listed "25,000.00" as their "Current Value of Property Without Deducting Exemption" based on "11 U.S.C. 522(d)(5) and 522(d)(11)(D) and (11)(E)."

Debtor filed an identical amended Schedule C on July 23, 2003.

Debtor's meeting of creditors was held on August 8, 2003 and "continued generally" by the Trustee. As of the date of this Court's hearing on the present matters, the meeting of creditors had not concluded.

On October 1, 2003, the Trustee filed a motion to approve a $35,000.00 settlement of Debtor's litigation with New York Life Insurance Co.³

Debtor elected, yet again, to amend Schedules B & C on October 16, 2003. See Doc. 156. Once again, Debtor described eight lawsuits⁴ on his Schedule B. Immediately above their descriptions, he included the statement "THE VALUE OF EACH OF THESE CLAIMS IS UKNOWN; THEY (the claims) ARE IN LITIGATION." In addition, Debtor listed "UNKNOWN" in the column labeled "Current Market Value of Debtor's Interest in Property, without Deducting any Secured Claim or Exemption" with regard to the lawsuits. Identical notations were made on Schedule C with regard to the "Value of Claimed Exemption" and the "Current Value of Property Without Deducting Exemption." Debtor based these exemptions on "11 USC: 522(d)(5), 522(d)(11)(D), 522(d)(11)(E), 522(d)(10)(C), and/or 522(d)(10)(E)."

On November 13, 2003, the Trustee and New York Life Insurance Co. ("NYL") filed individual objections to Debtor's October 16, 2003 amendment.

Debtor filed responses to each objection on December 24, 2003, along with supplements to the exemptions claimed on Schedule C. These documents contained an unsigned declaration that "should this exemption Table be deemed in any way materially different from the Amendments to Exemptions filed by Debtor on October 16, 2003, then the parties are hereby placed on Notice that the debtor hereby elects, as per his right under 11 U.S.C. 1009, to exempt his property as per the exemptions and amounts herein listed." Debtor lists a total of nine lawsuits between himself and various entities. Included in this amendment is detailed information regarding each cause of action, its current procedural posture, the specific law upon which his exemption claim is based, the exemption's value and the asset's current market value.⁵ With regard to the NYL litigation, Debtor listed "$675,000" as the "Value of Claimed Exemption" and "$675,000" as the "Current Market Value...." Under the column entitled "Specify Law Upon which Debtor is Relying in Claiming Exemption," Debtor lists sections 522(d)(10)(C) and 522(d)(11)(E ).⁶

In response, the Trustee filed Chapter 7 Trustee's Objections to Debtor's Amendments to Schedule C (Property Claimed as Exempt) Filed on December 24, 2003 on January 23, 2004. NYL also filed its Motion to Strike Amendments To Claim of Exemptions Filed on December 24, 2003, or in the Alternative Objections of New York Life Insurance Company to the Exemptions Claimed by the Debtor by Amendment Filed on December 24, 2003 on January 23, 2004. Debtor filed a response to these objections on February 17, 2003.

On February 19, 2004, Debtor's counsel filed a Praecipe to Add Unsworn Declarations with respect to the December 24, 2003 amendment. See Doc. 192.

The Trustee filed a second motion requesting approval of a settlement of the NYL litigation for $35,000 on February 24, 2004.

A hearing was held on May 20, 2004 whereby testimony was taken and the parties voiced their respected positions regarding the issue. The parties were instructed to file briefs within thirty (30) days and the matter was thereafter taken under advisement.

JURISDICTION

This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and this Court has jurisdiction under 28 U.S.C. §§ 1334, 157 and Middle District of Pennsylvania Standing Order Misc. 84-0203 to render this decision.

DISCUSSION

Subject to a few specific exceptions not relevant here, the Ming of a bankruptcy petition creates an estate comprised of "all legal or equitable interest of the debtor in property as of the commencement of the case." See 11 U.S.C. § 541(a)(1). This includes a debtor's interest in a cause of action. See Integrated Solutions, Inc. v. Service Support Specialties, Inc., 124 F.3d 487, 490 (3d Cir.1997). Section 522(b) permits a debtor to claim certain property interests exempt from administration by the trustee, either under relevant nonbankruptcy law or the federal exemptions listed in § 522(d).

Rule 4003(b) permits a trustee, or other party in interest, to file an objection to the list of property claimed as exempt within thirty days of its filing. The objector must then carry the burden of producing evidence that rebuts the presumption that the claimed exemption is valid. See. Fed. R. Bankr.P. 4003(C); Fed.R.Evid. 301; accord Lampe v. Williamson (In re Lampe), 331 F.3d 750, 754 (10th Cir.2003).

Both the Trustee and NYL have filed objections to Debtor's latest amendment to his Schedule C. These objections range from technical issues involving procedural deficiencies to issues concerning the propriety of certain exemptions Debtor has claimed in particular causes of action. These objections have presented this Court with a number of issues: (1) whether this Court has the power to exercise judicial discretion and disregard a debtor's amendment of claimed exemptions; (2) whether a debtor may properly claim exemptions under both federal and relevant non-bankruptcy law; (3) whether a debtor may utilize one statutory provision to claim multiple and distinct exemptions in separate causes of actions; (4) whether certain exemptions claimed by Debtor are proper; and lastly (5) whether a debtor's claim that a specific dollar amount of an asset's value is exempted grants him the right to receive all proceeds in excess of that specific dollar amount that may flow from its liquidation. Each of these issues will turn on this Court's interpretation of specific statutory provisions and applicable procedural rules.

I.

The Trustee's first objection focuses on Debtor's failure to include a verification or unsworn declaration, in accordance with Rule 1008 of the Federal Rules of Bankruptcy Procedure⁷, with respect to his last amendment. The Trustee also takes issue with the...