In re Delaney, Case No. 06-32701 (Bankr.S.D.Ohio 3/10/2009), Case No. 06-32701.
| Decision Date | 10 March 2009 |
| Docket Number | Case No. 06-32701. |
| Parties | In re: GREG K. DELANEY, ELIZABETH A. DELANEY, Chapter 7, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
This is a contested matter arising out of the United States Trustee's and the Debtors' filing of separate motions pursuant to Bankruptcy Rule of Procedure ("BR") 9024 incorporating Federal Rule of Civil Procedure ("FRCP") 60(b), and 11 U.S.C. §§ 105, 307, and 5411 requesting the court to reconsider and vacate orders that this court entered granting the Chapter 7 Trustee's objection to the claim of an exemption in a retirement account held by Debtor Elizabeth A. Delaney and compelling the Debtors and the account managers or custodians for the account to turn over the funds in the account and documents pertaining to the account to the Chapter 7 Trustee.
The issues presented in this matter are:
1. Whether the court should vacate its prior orders finding the retirement account is not exempt and ordering turnover of the account funds and account documents to the Chapter 7 Trustee; and,
2. If the court vacates those orders, whether the retirement account, or any portion thereof, is property of the estate and if any portion of the account is property of the estate, whether the Debtors are entitled to any exemption in the account or account funds.
For the reasons stated in this decision, the court denies all relief sought by the United States Trustee (the "UST") and the Debtors.
This court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered by the District Court for the Southern District of Ohio. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (E) and (O).
Greg K. Delaney and Elizabeth A. Delaney (the "Debtors") filed a joint Chapter 7 petition on September 22, 2006 (Doc. 1). With their petition they filed their schedules including Schedule B listing, among other personal property, a 403(b) account (the "Account") held by the Debtor Elizabeth Delaney as a result of her employment with Miami Valley Hospital and Schedule C listing their claimed exemptions (Doc. 1, p. 11). Schedule B listed the Account as having a value of $130,000 and stated that the "Debtor will provide details at 341 hearing." (Doc. 1, p. 8). Schedule C listed the Account as being exempt under Ohio Revised Code ("ORC") § 2329.66(a)(10)(B) (Doc. 1, p. 11).
The Debtors' meeting of creditors scheduled pursuant to § 341 was held on November 16, 2006. On January 16, 2007, John Paul Rieser, the Chapter 7 Trustee (the "Trustee"), filed an objection to the Debtors' asserted exemption claim relating to the Account (Doc. 32) (the "Objection"). The Debtors filed no response to the Objection and on February 22, 2007, the court entered an order granting the Objection (Doc. 40) (the" Order Denying Exemption").
On May 29, 2007, the Trustee filed a motion to compel turnover of documents and tax refunds from the Debtors relating to the Account and also sought sanctions against the Debtors for failure to respond to the Trustee's document requests (Doc. 56). Specifically, that motion requested the Debtors to turnover copies of the current plan for the Account and copies of the current statement for the Account. The Debtors did not respond to the Trustee's motion to compel and this court entered an order granting that motion on June 26, 2007 (Doc. 58) (the "Debtors' Turnover Order").
On June 20, 2007, the Trustee filed a motion requesting the court to "issue an Order pursuant to 11 U.S.C. § 542 and L.B.R. 9011-3, to compel Metlife, the company holding the non-exempt Metlife Account . . . and Citistreet, the company managing the records for the non-exempt Metlife Account to: cooperate with the Trustee's attempts to liquidate and to provide any documents needed to liquidate the amount directly to the Trustee, and to turnover the funds directly to the Trustee notwithstanding the Debtors' failure to cooperate." (Doc. 57). Neither the Debtors, Metlife nor Citistreet responded to that motion to compel and this court entered an order granting that motion (Doc. 61) (the" Metlife and Citistreet Turnover Order"). The Debtors' Turnover Order and the Metlife and Citistreet Turnover Order shall collectively be referred to as the "Turnover Orders."
On August 29, 2007, in an unusual action, the UST intervened by filing a Motion for Reconsideration of the Orders Granting Trustee John Paul Rieser's Objection to the Debtors' Claim of Exemptions in Miami Valley Hospital 403(B) Account & Motion to Compel Pursuant to 11 U.S.C §§ 105, 307, 541 and Fed. R. Civ. P. 60 as Incorporated by Fed. R. Bankr. P. 9024 With Memorandum in Support (the "UST Motion for Reconsideration") (Doc. 65) seeking to vacate the Order Denying Exemption and the Turnover Orders. The UST's primary argument was that the Account, or funds therein, were not property of the Debtors' bankruptcy estates. The UST alternatively suggested that the funds may be exempt (Doc. 65, p. 4, n. 11). The Trustee filed a response in opposition to the UST Motion For Reconsideration on September 13, 2007 (Doc. 67) and the UST filed a Supplemental Brief on November 30, 2007 (Doc. 74). The UST and Trustee filed stipulations on December 18, 2007 (Doc. 75).
The court scheduled a hearing for January 10, 2008 on the UST's Motion for Reconsideration and the Trustee's response to that Motion (Doc. 72). On January 9, 2008, the Debtors filed a motion seeking a continuance of the January 10, 2008 hearing and time to file their own motion under FRCP 60(b) and BR 9024 (Doc. 79). The UST objected to the Debtors' request for a continuance of the January 10, 2008 hearing and the court entered an order denying that motion and ordering that counsel for the Debtors, the UST, and the Trustee appear for the January 10, 2008 hearing and deferring determination of the Debtors' request to respond to the Trustee's motions until the January 10, 2008 hearing (Doc. 82).
The January 10, 2008 hearing was attended by counsel for the Debtors, the UST, and the Trustee. At the time of the hearing, the Chapter 7 Trustee had not received all of the documents pertaining to the Account and was not in possession of the funds from the Account, which were still held by the Account manager.2 Without the necessary documents and information at the time of the hearing, the Trustee and UST were unable to conclusively determine that the Account was, in fact, a 403(b) Account and could not provide a breakdown as to what portion of the Account was contributed by the Debtors, what portion of the Account was withheld from Elizabeth Delaney's wages, what portion was contributed by Ms. Delaney's employer, and what portion of the Account was attributable to earnings, dividends, interest, or other income received on Account of the principal invested in the Account.
At the January 10, 2008 hearing, the Debtors' counsel stated as follows:
When our office initially received the initial motion for objection to the exemption from Mr. Rieser's office, I did discuss this matter with my clients and made my own mistake of law and was under the impression that 401(b) (sic) plans were not exempt and so we did not respond purposefully and that order was issued by Judge Waldron. January 10, 2008 Transcript ("Tr."), p. 2 (Doc. 122). The Debtors' counsel also stated at the hearing that, following the UST's filing of the Motion for Reconsideration and after he became aware of the filings docketed after the Objection, he believed that the Account was not property of the estate. At the January 10, 2008 hearing, the Debtors' counsel requested that the Debtors be granted time to file their own motion under Rule 60(b) "as well as an opportunity to amend the schedules." January 10, 2008 Tr., pp. 2-3 (Doc. 122).
Following the hearing, the court entered an order which, among other things, provided the Debtors until February 1, 2008 to file their own motion or other papers concerning the Account, ordered that all documents pertaining to the Account be produced to the UST and Trustee by February 15, 2008, and ordered the parties to file stipulations and any other filings concerning the Account issues by February 29, 2008 (Doc. 86). Specifically, the paragraph enumerated 3 provided that: "Debtors shall have until February 1, 2008 to file a motion pursuant to Federal Rule of Civil Procedure 60(b) (Bankruptcy Rule 9024) or such other motion or papers they deem appropriate to protect their interests in the contested matter, including affidavits or other documentation." (Doc. 86; emphasis in original).
On February 1, 2008, the Debtors filed their own Motion For Reconsideration of the Orders Granting Trustee's Objection to Debtors' Claim of Exemptions in Miami Valley Hospital 403(B) Account & Motion to Compel With Memorandum in Support (the "Debtors' Motion for Reconsideration"), arguing that the Account was not property of the Debtors' estates. (Doc. 90). The prayer for relief states that "the Debtors respectfully request that the Court reverse its prior orders in this matter and rule that the Debtor's 403(b) plan is not property of the estate." (Doc. 90, p. 5). The Debtors' Motion for Reconsideration did not address any possible exemption as to the Account not yet claimed on Schedule C.
On February 29, 2008, the Trustee filed a status report stating, among other things, that he did not receive all of the documents and information pertaining to the Account to enable him to determine how much money the Debtors contributed to the Account, how much money any employer contributed to the Account, and how much of the Account was attributable to interest, dividends, earnings or other income (Doc. 98). On April 10, 2008, the court conducted...
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