In re Daniels
| Decision Date | 06 December 2001 |
| Docket Number | No. 00-32170.,00-32170. |
| Citation | 270 BR 417 |
| Parties | In re William F. DANIELS and Mary J. Daniels, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
COPYRIGHT MATERIAL OMITTED
Jon Allen Broadworth, Roseville, MI, for Debtors.
Collene K. Corcoran, Bingham, Farms, MI, Chapter 7 Trustee.
CORRECTED OPINION SUSTAINING THE TRUSTEE'S OBJECTION TO THE DEBTORS' AMENDED CLAIM OF EXEMPTIONS
This matter is before the Court on the Trustee's objection to the Debtors' amended claim of exemptions of the proceeds of a personal injury lawsuit. The Court will sustain the Trustee's objection because (1) the Court has previously entered a final order determining that the Debtors are not entitled to exempt their interest in the personal injury lawsuit from the bankruptcy estate and such decision bars them from relitigating this issue; and (2) the doctrine of laches precludes the Debtors from asserting their amended claim of exemptions.
The Debtors filed a voluntary petition for relief under Chapter 7 and all schedules and statements on October 26, 2000. On Schedule B, the Debtors listed a personal injury lawsuit captioned "William Daniel v. Kroger Co. of MI, Great Lakes Automatic Door" pending in Genesee County Circuit Court (Case No. 00-067490-NO) as personal property, and listed its value as "UNKNOWN." On Schedule C, the Debtors claimed the lawsuit exempt under 11 U.S.C. §§ 522(d)(11)(D) and 522(d)(5),1 respectively listing the value of each statutory exemption and of the lawsuit as "UNKNOWN."
On December 26, 2000, the Trustee timely filed an objection to the Debtors' claim of exemptions in the personal injury lawsuit based on the Debtors' failure to list on Schedule C specific dollar amounts for each statutory exemption claimed for the lawsuit. The Trustee asserted that "without a dollar amount stated on Schedule C, it is impossible for the Trustee to determine whether the lawsuit should be pursued as an asset of the estate, or abandoned by the estate." Trustee's Objection to Exemptions at ¶ 6. The Trustee stated that "unless the Debtors amend Schedule C to provide for a dollar amount for each exemption, the Trustee is requesting that the exemptions taken for the lawsuit be denied in their entirety." Id. at ¶ 7. The Debtors did not file a response.
On January 29, 2001, the Trustee filed a certification of non-response to her objection. On January 31, 2001, the Court entered an order sustaining the Trustee's objection based on the Trustee's certification. The Debtors did not seek reconsideration or relief from the order denying their claimed exemptions and did not appeal the order.
On February 14, 2001, the Court granted the Trustee's application for approval of the employment of special counsel to pursue the state court personal injury lawsuit. On July 30, 2001, the Trustee filed a motion seeking the Court's approval of a settlement of the personal injury claim for $21,500. In support of her motion, the Trustee asserted, in part, that "pursuant to the Order Sustaining Trustee's Objection to Exemptions, dated January 31, 2001, the debtor will receive no funds from this settlement but all funds will be paid to his bankruptcy estate for the benefit of his creditors." Trustee's Mot. For Compromise of Claim at ¶ 8. For this reason, the Trustee concluded that "it is uncertain if the debtor will testify on behalf of the estate." Id.
The Debtors objected to the Trustee's motion for approval of the compromise. In their objection, the Debtors denied that they would receive no funds from the settlement of the lawsuit for the reason that they were "unable to place a value on the asset and thus . . . unable to determine the exemption." Debtors' Response to Trustee's Mot. For Compromise of Claim at ¶ 8.
On August 20, 2001, the Debtors filed a statement of purpose "to amend Schedules B & C to add value and exempt amount to personal injury lawsuit." On their amended Schedule B, the Debtors valued the personal injury lawsuit at $20,000. On their amended Schedule C, the Debtors claimed exemptions for the lawsuit under §§ 522(d)(11)(D) and 522(d)(5), valuing each claimed exemption respectively at $16,150 and $3,850.
On September 4, 2001, the Trustee filed an objection to the Debtors' amended claim of exemptions. In essence, the Trustee asserted that allowing the amended exemptions, where the Debtors had failed to take any action to cure their defective schedules until after the Trustee and special counsel had negotiated a settlement of the lawsuit, would be "prejudicial to creditors and the estate." Trustee's Objection to Debtors' Amended Exemptions, p. 1. The Trustee explained that she had relied upon the order denying the Debtors' exemptions in deciding whether there would be sufficient "equity for the creditors upon liquidation of the asset" to justify pursuing the state court litigation for the benefit of the estate, and, together with the special counsel, had expended considerable time and expense in pursuing the litigation to benefit creditors. Id. at ¶ 9.
On September 17, 2001, the Debtors filed an answer to the Trustee's objection to their amended claim of exemptions. In essence, the Debtors argued that they were justified in failing to respond to the Trustee's initial objection to their claimed exemptions and in failing to take other legal action prior to the Trustee and special counsel negotiating a settlement, because they "could not have reasonably ascertained a value to claim as exempt, prior to the Trustee having received information that the case could be settled for a specific value." Debtors' Answer to Trustee's Objection to Debtors' Amended Exemptions, ¶ 5.
On October 24, 2001, the Court entered an order approving the Trustee's compromise of the personal injury claim for $21,500. The Court must now decide whether, under the circumstances, it is appropriate to allow the Debtors' amended claim of exemptions in the proceeds of the personal injury lawsuit.
Section 522(l) of the Bankruptcy Code and Fed. R. Bankr.P. 4003(a) require debtors to schedule all property claimed as exempt pursuant to § 522(b). Under Fed. R. Bankr.P. 4003(b), any party in interest may object to a debtor's claimed exemptions "only within 30 days after the meeting of creditors held under § 341(a) is concluded." "Unless a party in interest objects, the property claimed as exempt on such list is exempt." 11 U.S.C. § 522(l). However, if a party in interest objects, the bankruptcy court will determine whether to allow the exemption as a contested matter governed by Fed. R. Bankr.P. 9014. Pursuant to L.B.R. 9014-1(a) (E.D.M.), "an objection to a claim of exemption is deemed to be a motion." Pursuant to L.B.R. 9014-(c), if the debtor does not timely serve a response to a movant's objection to his claimed exemptions, the Court may enter an order denying the exemptions without a hearing provided the movant files a certification of no response, together with a proposed order granting his motion and "a copy of the original proof of service of the motion," no earlier than the time periods specified by the local rule. "An order denying a claim of exemption is a final, appealable order." 9 Collier on Bankruptcy, ¶ 4003.032, at 4003-12 (15th ed. rev.2001).
Fed. R. Bankr.P. 1009(a), provides debtors with the "general right to amend" their schedules, including their schedules of exemptions, "as a matter of course at any time before the case is closed." However, as with an originally filed schedule of exemptions, upon the timely filing of an objection to the amended claim of exemptions by a party in interest ("within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later"), a bankruptcy court will determine whether to allow the exemptions. Fed. R. Bankr.P. 4003(b)-(c). "The courts have, for the most part, not made a distinction between a denial of the right to amend exemptions and a denial of exemptions because the former usually results in the latter." In re Sumerell, 194 B.R. 818, 832 n. 20 (Bankr.E.D.Tenn.1996). However there is a distinction that was explained by the court in In re Welborne, 63 B.R. 23, 24-25 (Bankr.D.Neb.1986):
Under Rule 1009 the debtor may amend the schedules, including one containing the listed exemptions, at any time as a matter of course until the case is closed. The fact that the debtor has the right to amend the schedules as a matter of right does not necessarily mean that any additional claim of exemptions ultimately will be allowed. It is clear that a trustee or any party in interest have just as much right to object to the additional claim of exemptions as they have to object to the original claim of exemptions.
Id. (emphasis added). "In any hearing on an objection to a debtor's original or amended claim of exemptions the objecting party has the burden of proving that the exemptions are not properly claimed." Fed. R. Bankr.P. 4003(c); see also In re Lusiak, 247 B.R. 699, 702 (Bankr.N.D.Ohio 2000) ()2 (citing In re Sims, 241 B.R. 467, 468 (Bankr.N.D.Okla.1999)).
Despite the general policy of liberally allowing amendments to schedules under Rule 1009(a), it is well-settled that there are valid grounds for bankruptcy courts to deny a debtor's amended claim of exemptions.
Bankruptcy courts should disallow an amended claim of exemption where the purpose and/or the effect of the amendment is to allow the debtor to relitigate an exemption claim which has already been determined by the court. In re Grantham, 256 B.R. 262, 263-64 (Bankr. M.D.Tenn.1999); 9 Collier on Bankruptcy, ¶ 1009.021, at 1009-4 (...
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