In re Hoffman

• Decision Date: 26 July 2019
• Docket Number: CASE NUMBER 18-10556-WHD
• Citation: 605 B.R. 560
• Parties: In the MATTER OF: Timothy Russell HOFFMAN, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

605 B.R. 560

In the MATTER OF: Timothy Russell HOFFMAN, Debtor.

CASE NUMBER 18-10556-WHD

United States Bankruptcy Court, N.D. Georgia, Newnan Division.

Signed July 26, 2019

David S. Ballard, Ballard Law Office, LLC, Fayetteville, GA, for Debtor.

Theo Davis Mann, Newnan, GA, pro se.

ORDER ON SIGNATURE BANK'S OBJECTION TO DEBTOR'S EXEMPTIONS

W. Homer Drake, U.S. Bankruptcy Court Judge

Before the Court is Signature Bank's Motion to Disallow Exemption (hereinafter the "Objection"). (Doc. 32). The issue before the Court is whether the Debtor's retirement accounts are excluded from the estate, or, in the alternative, whether they are exempt under Georgia law. The Court will now consider the arguments presented by the parties in the pleadings and at the hearing on the Objection. The following constitutes the Court's Findings of Fact and Conclusions of Law under Fed. R. Bankr. P. 7052, made applicable to this proceeding by Fed. R. Bankr. P. 9014.¹

Factual Background

The Debtor is a retired Air Force Colonel who currently works as a flight simulator instructor. Prior to filing his petition for relief, the Debtor entered into an agreement with Signature Bank, in which he guaranteed an SBA loan in the amount of $432,000 for the purpose of helping his son-in-law open a restaurant. The venture eventually failed, and Signature Bank brought collection actions in the State Court of Fayette County, Georgia against the Debtor, his daughter, and his son-in-law. On March 19, 2018, the Debtor filed the instant petition for relief under Chapter 7 of the Bankruptcy Code.² Signature Bank filed a proof of claim, asserting an unsecured claim in the amount of $456,650.96. The Debtor, in his initial Schedule C, indicated the following:

• IRA (Contributory IRA): $1,477,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2)(E) ;

• IRA (Roth Conversion): $63,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2)(E) ;

• IRA (Contributory Roth): $213,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2)(E) ;

• 401(k): $9,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2.1).

• IRA (distribution from IRA): $55,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2)(F).

(Doc. 1). The Debtor subsequently amended Schedule C, (Doc. 3),³ to show the following:

• IRA (Contributory IRA): $1,477,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2.1) ; excluded under § 541(c)(2);

• IRA (Roth Conversion): $63,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2)(E) ; excluded under § 541(c)(2);

• IRA (Contributory Roth): $213,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2)(E) ; excluded under § 541(c)(2);

• 401(k): $9,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2.1).

• IRA (distribution from IRA): $55,000; exemption claimed pursuant to O.C.G.A. § 44-13-100(a)(2)(F).

According to the Debtor's testimony given during the 2004 examination and at the hearing on the Objection, the Debtor receives approximately $190,000 per year through income and pension payments, which, given his scheduled expenses, provides him with a $5,000 surplus per month. (Deposition of Timothy R. Hoffman ("Hoffman Depo.") at 24:5-25:5). The Debtor provides financial support for his dependent wife's numerous medical expenses, and he maintains several insurance plans, including life and health, for the benefit of himself and his wife. The Debtor also contributes occasional financial support to his non-dependent adult daughter, although the extent of this support is unclear.

Signature Bank objects to the Debtor's claimed exemptions and asserts the following in support thereof: (1) the Debtor has failed to carry his burden in proving his exemptions; (2) the Debtor is precluded from arguing that the funds are exempt from the estate pursuant to § 541(c)(2); (3) the Debtor's claimed exemptions exceed the statutory cap imposed by § 522(n); and (4) the funds are not exempt in their entirety because they are not reasonably necessary for the support of the Debtor and his dependent wife. (See Doc. 32 and 37).

In response, the Debtor asserts the following: (1) § 522(n) does not apply to state exemptions; (2) the retirement accounts are excluded from the estate pursuant to § 541(c)(2); and (3) notwithstanding the applicability of § 541(c)(2), these accounts are exempt in their entirety because they are reasonably necessary for the support of the Debtor and his wife. (See Doc. 36 and 38).

Conclusions of Law

This matter constitutes a core proceeding, over which this Court has subject matter jurisdiction. See 28 U.S.C. § 157(b)(2)(A), (B), and (O) ; § 1334. Venue is proper under 28 U.S.C. § 1409.

As an initial matter, the Court will address Signature Bank's assertions that: (1) the Debtor bears the initial burden of proving his exemptions, and (2) that the Debtor's judicial admissions preclude him from asserting the IRAs are excluded from the estate pursuant to § 541(c)(2).

Burden of Proof

Rule 4003(c) states that "the objecting party has the burden of proving that the exemptions are not properly claimed." Rule 4003(c). Notwithstanding the plain language of Rule 4003(c), Signature Bank, relying on several decisions from bankruptcy courts within the Ninth Circuit, asserts that the burden of proof rests upon the Debtor to prove that his exemptions are proper. In re Davis, 323 B.R. 732 (9th Cir. BAP 2005) (Klein, J., concurring); In re Pashenee , 531 B.R. 834 (Bankr. E.D. Cal. 2015) (holding that the exemption claimant bears the burden of proof); see In re Barnes , 275 B.R. 889 (Bankr. E.D. Cal. 2002). In support of this conclusion, these courts rely on Raleigh v. Illinois Dept. of Revenue , 530 U.S. 15, 17-20, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000), in which the Supreme Court held that the burden of proof is a substantive aspect of a claim, and that the burden of proof in bankruptcy remains where substantive nonbankruptcy law places it.

This Court finds this interpretation and application of Raleigh unpersuasive because Raleigh is clearly distinguishable from the instant case.⁴ In Raleigh , the Supreme Court addressed a state tax liability issue that arose in the context of a claim objection. 530 U.S. 15, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000). The matter before this Court involves state law exemptions and an objection thereto. Consequently, the Court rejects Signature Bank's argument and concludes that the burden is on Signature Bank to prove, by a preponderance of the evidence, that the Debtor's exemptions are improper. See Rule 4003(c); see In re Cassell , 443 B.R. 200, 203-04 (Bankr. N.D. Ga. 2010) ; aff'd 713 F.3d 81 (11th Cir. 2013).

Debtor's Judicial Admissions

Judicial admissions are formal concessions in the pleadings, or stipulations by a party or its counsel, that are binding upon the party making them and may not be controverted at trial. Keller v. U.S., 58 F.3d 1194, 1199 n.8 (7th Cir. 1995) ; In re Summit United Serv., LLC , 2005 WL 6488106, at *4 (Bankr. N.D. Ga. Sept. 19, 2005). Judicial admissions must be clear, deliberate, and unequivocal factual assertions. In re Jones , 197 B.R. 949, 956 (Bankr. M.D. Ga. 1996). Judicial admissions are not considered evidence, "but rather have the effect of withdrawing a fact from contention[,]" and are conclusive unless the court allows the party to withdraw the admission or "the pleading is amended or withdrawn." In re Summit United Serv., LLC, 2005 WL 6488106, at *4.

Signature Bank contends that the Debtor admitted that the IRAs were assets of the estate in his bankruptcy schedules, and that he affirmed this admission in his sworn testimony in both the § 341 meeting and his 2004 examination. As a result, Signature Bank asserts that these acts constitute judicial admissions, and, thus, preclude the debtor from raising any argument concerning exclusion under § 541(c)(2).

Statements in bankruptcy schedules are executed under penalty of perjury and, when offered against a debtor, are eligible for treatment as judicial admissions. In re Vanguard Airlines, Inc., 298 B.R. 626, 635 (Bankr. W.D. Mo. 2003). However, disclosing property does not waive the argument that property is not property of the estate. In re Dorsey, 497 B.R. 374, 384 (Bankr. N.D. Ga. 2013). "In fact, the Code requires full disclosure of property, some of which may not be property of the estate, for ‘[t]he concept of property of the estate is a fact-based legal conclusion to be decide[d] by the court after the facts are reviewed by interested parties.’ " Id. (citing In re JZ L.L.C., 371 B.R. 412 (9th Cir. BAP 2007) ). Further, the Debtor has amended Schedule C to claim both exemption and exclusion. (Doc. 39).⁵ When a pleading is amended, the superseded portion ceases to be a judicial admission. United States v. McKeon , 738 F.2d 26, 31 (2d Cir. 1984).

The Court recognizes that the Debtor amended Schedule C after the hearing on the Objection. It is true that res judicata bars a debtor from repeatedly amending their schedules to assert new theories for why a particular asset is exempt from bankruptcy. In re McFarland , 557 B.R. 256, 260 (Bankr. S.D. Ga. 2016). However, a debtor is generally permitted to amend the list of exemptions "as a matter of course any time before the case is closed." Rule 1009(a).⁶ In the case at bar, amended Schedule C does not conflict with the arguments raised by the Debtor in his responsive pleadings and at the hearing, but merely incorporates those arguments into the schedules.

Moreover, the Debtor's statement that the IRAs are property of the estate is a legal conclusion, and, therefore, does not qualify as a judicial admission. In re Dorsey , 497 B.R. at 384 (stating that the concept of property of the estate is a fact-based legal conclusion); MacDonald v. General Motors Corp., 110 F.3d 337, 341 (6th Cir. 1997) (ruling that opinions and legal conclusions, as opposed to statements of fact, do not constitute binding judicial admissions); In re Stalnaker , 408 B.R. 440, 444–45 (Bankr. M.D. Ga. 200...