In re Daniel And Debbie Magee

• Decision Date: 03 February 2011
• Docket Number: No. 08–37600.,08–37600.
• Parties: In re Daniel and Debbie MAGEE, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

444 B.R. 254

In re Daniel and Debbie MAGEE, Debtors.

No. 08–37600.

United States Bankruptcy Court, S.D. New York.

Feb. 3, 2011.

Jeffrey Herzberg, Zinker & Herzberg, Smithtown, NY, for Kamco Supply Corp.Marie Condoluci, Of Counsel, Simon Haysom LLC, Goshen, NY, for Debtors.

MEMORANDUM DECISION DENYING OBJECTION TO HOMESTEAD EXEMPTION

CECELIA MORRIS, Bankruptcy Judge.

Judgment creditor Kamco Supply Corp. objects to Daniel Magee's (“Daniel”) homestead exemption in the amount of $50,000, alleging that Daniel claimed the $10,000 exemption in his earlier bankruptcy case. Kamco argues that the earlier homestead exemption, which was for the legal amount in effect at the time, is res judicata in the present case, which was filed after New York increased its homestead exemption to $50,000. The Court overrules the objection. Daniel's first and second cases involve two distinct estates, and the present bankruptcy estate and exemptions are governed by the law in effect at the time the present case was commenced, which allows a $50,000 exemption.

Statement of Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Acting Chief Judge Robert J. Ward dated July 10, 1984. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

Background

Debtors commenced the present chapter 13 case on November 20, 2008, and confirmed a plan on January 19, 2010. Daniel is a repeat filer; he received the chapter 7 discharge on March 17, 2005.

In his previous, chapter 7 case, Case No. 04–37833, Daniel listed his residence in Monroe, New York, as having a market value of $235,000, subject to secured claims totaling $336,026.91. He exempted $10,000 in home equity, the legal amount of the New York homestead exemption at the time. On February 3, 2005, the chapter 7 trustee filed the following “no asset” report: “Trustee requests discharge and certifies under [Federal Rule of Bankruptcy Procedure] 5009: the estate has been fully administered; I have neither received nor distributed any nonexempt property; I have diligently inquired about the debtor(s) financial affairs and location of estate property. The estate has no nonexempt property to distribute.” On the petition, Debtor referenced Kamco as a secured creditor, by listing a secured claim in the amount of $175,000 in favor of “Marshall, City of New York,” with the annotation, “Judgment Creditor: Kamco Supply Corp vs Daniel Magee.” Debtor did not move to avoid a judgment lien in the chapter 7 case.

In the schedules filed with their petition in the present, chapter 13 case, Debtors indicate that their residence in Monroe is worth $300,000, subject to a secured claim of about $75,000, representing a home mortgage. Kamco is not listed in the schedules, or referenced in the confirmed chapter 13 plan.

On August 13, 2010, Kamco moved for relief from the stay, so that it could renew a judgment against the Debtors. The judgment was issued in January 2001 for the amount of $134,309.25, and was docketed in April 2001. With judgment interest, the present amount of the debt is estimated to be $291,704.76. The judgment lien will expire in 2011. The Court notes that the judgment appears to have been perfected before New York increased the homestead exemption to $50,000.

It appears that Daniel's personal liability on this debt was discharged in his previous, chapter 7 case. Joint-debtor Debbie allegedly remains liable for the debt, and the judgment lien has not been avoided. The parties appear to agree that the omission of Kamco from the schedules and list of creditors in the present case was an honest mistake on the part of the Debtors.

By Order entered on October 26, 2010, the Court denied Kamco's motion for relief from the stay. Debtor's motion to allow Kamco a late claim was granted on the record of the hearing held on October 19, 2010, and the Order allowing Kamco to file a claim was entered on November 24, 2010. Counsel to Kamco filed a proof of a secured claim in the amount of $258,412.98, with arrears of $124,103.25, the security being the judgment lien.

On October 28, 2010, counsel to Kamco objected to Daniel's homestead exemption, alleging that Daniel is not entitled to his $50,000 homestead exemption, because he took a $10,000 homestead exemption in his first bankruptcy case in 2004. Kamco argues that no party objected to the exemption, and therefore the exemption was allowed and granted. Kamco argues that Daniel's exemption must be limited to $10,000, based on res judicata.

Kamco does not object to Debbie's homestead exemption.

Discussion

The homestead exemption is established by a New York statute. Daniel's homestead exemption is allowed in the amount of $50,000, because that is the amount of the homestead exemption in effect at the time the present case was commenced. The exemptions taken in a previous, chapter 7 case do not bind the current, chapter 13 case, because the cases are separate and unrelated legal events.

Principles of res judicata

To determine whether the doctrine of res judicata bars a subsequent action, [courts] consider whether 1) the prior decision was a final judgment on the merits, 2) the litigants were the same parties, 3) the prior court was of competent jurisdiction, and 4) the causes of action were the same. In the bankruptcy context, [courts] ask as well whether an independent judgment in a separate proceeding would impair, destroy, challenge, or invalidate the enforceability or effectiveness of the reorganization plan.In re Layo, 460 F.3d 289 (2d Cir.2006) “A final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action. Nor are the res judicata consequences of a final, unappealed judgment on the merits altered by the fact that the judgment may have been wrong or rested on a legal principle subsequently overruled in another case.” Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) (Rehnquist, J.). See also Ljutica v. Holder, 588 F.3d 119, 126 (2d Cir.N.Y.2009) (“The doctrine of res judicata provides that a final judgment on the merits bars a subsequent action between the same parties over the same cause of action”); Johnson v. Potter, 2010 WL 3784052 at *1, 2010 U.S.App. LEXIS 20271 at *3 (2d Cir. Sept. 30, 2010) (“Res judicata bars relitigation of issues that were previously litigated by the same parties or their privies to a final judgment in a court of competent jurisdiction”).

In Moitie, the district court dismissed the complaints of seven plaintiffs. Moitie, 452 U.S. at 395–396, 101 S.Ct. 2424. All but two plaintiffs appealed. Id. at 396, 101 S.Ct. 2424. The other two plaintiffs sued in state court; these actions were transferred to federal court and were dismissed, the court finding that the state-court complaints were similar to the complaints in the first district court action and were barred by res judicata. Id. at 369–397, 101 S.Ct. 2424. Meanwhile, the group of five plaintiffs that had appealed the first federal ruling prevailed on their appeal, because a new Supreme Court opinion had been entered which might have affected their rights to relief. Id. at 397, 101 S.Ct. 2424. The five plaintiffs had successfully appealed the district court's dismissal.

The two plaintiffs that had attempted suit in state court were not permitted to rejoin the five plaintiffs that prevailed on appeal. The Supreme Court found that they should not be allowed to benefit from the other parties' efforts on appeal—the other five plaintiffs had no interest in the duo's cases, and the duo had made a calculated choice to forgo their appeals. Moitie, 452 U.S. at 400–401, 101 S.Ct. 2424. The Court rejected the circuit court's justification of “simple justice” and “public policy.” Id. at 401, 101 S.Ct. 2424. The dismissal of the first case was res judicata on the second case.

Principles of exemptions

Upon the commencement of a bankruptcy case, an estate is created. 11 U.S.C. § 541(a). The estate is comprised of all the debtor's legal or equitable interests in property. § 541(a)(1). To facilitate the debtor's “fresh start” and to protect the debtor's dependents, the debtor may exempt certain property from the bankruptcy estate. New York has “opted out” of the federal scheme of exemptions, and New York debtors' exemptions are set out in N.Y. C.P.L.R. §§ 5205 (personal property) and 5206 (real property). “Because state law establishes the debtor's exemption, state law will also define the scope of that exemption.” In re Lubecki, 332 B.R. 256, 258 (Bankr.W.D.N.Y.2005). The debtor must file a list of the property claimed as exempt; unless a party in interest objects, the property claimed as exempt on the list is exempt. Bankruptcy Code § 522( l ). The debtor exempts the debtor's interest in the property, not the property per se. Schwab v. Reilly, ––– U.S. ––––, 130 S.Ct. 2652, 2662, 2667, 177 L.Ed.2d 234 (2010) (Bankruptcy Code permits the debtor to withdraw from the estate certain interests in property, such as the car or home, up to certain values).

“Under [Bankruptcy] Code § 522(b), a debtor may be able to exempt property which allows the debtor to withdraw that property from property of the estate. This prevents the property from being used to pay debts through the bankruptcy case, as well as preventing most creditors from enforcing their claims through nonbankruptcy collection actions.” In re Little, 2006 WL 1524594, *2–3, 2006 Bankr.LEXIS 1010, 6–7 (Bankr.N.D.N.Y. Apr. 24, 2006) (Gerling, Bankr. J.). Exemptions are determined according to the law in effect on the date of the filing of the petition. Bankruptcy Code § 522(b)(3)(A); Owen v. Owen, 500 U.S. 305, 314 n. 6, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991) (emphasis added). “Maximization of exemptions, especially the homestead exemption, is a fundamental policy of the ...