In re Lebovitz

• Decision Date: 30 March 2007
• Docket Number: No. 06-8039.,06-8039.
• Citation: 360 B.R. 612
• Parties: In re Kerrye Hill LEBOVITZ, Debtor. Kerrye Hill Lebovitz, Appellant, v. Norman P. Hagemeyer, Chapter 7 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

360 B.R. 612

In re Kerrye Hill LEBOVITZ, Debtor.

Kerrye Hill Lebovitz, Appellant, v. Norman P. Hagemeyer, Chapter 7 Trustee, Appellee.

No. 06-8039.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued February 6, 2007.

Decided and Filed March 30, 2007.

Appeal from the United States Bankruptcy Court for the Western District of Tennessee.

COPYRIGHT MATERIAL OMITTED

ARGUED: Ellen B. Vergos, Martin, Tate, Morrow & Marston, P.C., Memphis, Tennessee, for Appellant. James E. Bailey III, Farris Mathews Branan Bobango Hellen & Dunlap, PLC, Memphis, Tennessee, for Appellee. ON BRIEF: Ellen B. Vergos, Martin, Tate, Morrow & Marston, P.C., Memphis, Tennessee, for Appellant. James E. Bailey III, Farris Mathews Branan Bobango Hellen & Dunlap, PLC, Memphis, Tennessee, for Appellee.

Before: AUG, GREGG, and SCOTT, Bankruptcy Appellate Panel Judges.

OPINION

JAMES D. GREGG, Bankruptcy Appellate Panel Judge.

In this chapter 7 case, the Debtor appeals the bankruptcy court's order granting the Trustee's motion for turnover and sustaining the Trustee's objection to the exemption claimed by the Debtor in five pieces of jewelry. The Debtor claims the jewelry is exempt as "necessary and proper wearing apparel" pursuant to Tennessee Code Annotated § 26-2-104. For the reasons that follow, the bankruptcy court's order is AFFIRMED.

I. ISSUE ON APPEAL

The issues in this appeal are (1) whether the Debtor's jewelry constitutes "necessary and proper wearing apparel" pursuant to Tennessee Code Annotated § 26-2-104; (2) whether the bankruptcy court abused its discretion in denying the Debtor's motion to strike an affidavit submitted by the Trustee showing the retail value of the jewelry after the close of proofs; and (3) whether the bankruptcy court erred in failing to instruct the Trustee to consider whether sales proceeds would result in a meaningful distribution to creditors after payment of administrative expenses in determining whether eventually to sell the Debtor's jewelry.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit ("Panel") has jurisdiction to decide this appeal. The United States District Court for the Western District of Tennessee has authorized appeals to the Panel. A final order of the bankruptcy court may be appealed as of right. 28 U.S.C. § 158(a)(1). The bankruptcy court's order denying the Debtor's claimed exemption of certain jewelry is a final appealable order. See Mason v. Young (In re Young), 238 B.R. 112, 113 (B.A.P. 6th Cir.1999).

The bankruptcy court's findings of fact are reviewed under the clearly erroneous standard. Fed. R. Bankr.P. 8013. A factual determination is clearly erroneous "when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Bailey v. Bailey (In re Bailey), 254 B.R. 901, 903 (B.A.P. 6th Cir.2000) (citations omitted).

The bankruptcy court's interpretation of Tennessee's exemption statute is reviewed under the de novo standard because it involves a question of law. Hamo v. Wilson (In re Hamo), 233 B.R. 718, 721 (B.A.P. 6th Cir.1999). "De novo review means that the appellate court determines the law independently of the trial court's determination." Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (B.A.P. 6th Cir.2001).

The bankruptcy court's decision to admit or exclude evidence is reviewed for an abuse of discretion. United States v. Humphrey, 279 F.3d 372, 376 (6th Cir. 2002). "An abuse of discretion is defined as a `definite and firm conviction that the [court below] committed a clear error of judgment.' The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." Mayor & City Council v. W. Va. (In re Eagle-Picher Indus., Inc.), 285 F.3d 522, 529 (6th Cir.2002). Under this standard, the bankruptcy court's decision will be disturbed only if it "relied upon clearly erroneous findings of fact, improperly applied the governing law, or used an erroneous legal standard." Elec. Workers Pension Trust Fund of Local Union # 58, IBEW v. Gary's Elec. Serv. Co., 340 F.3d 373, 378 (citing Blue Cross & Blue Shield Mut. v. Blue Cross & Blue Shield Ass'n, 110 F.3d 318, 322 (6th Cir.1997)).

III. FACTS

On October 14, 2005, Kerrye Hill Lebovitz ("Debtor") filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code. On Schedule B, the Debtor listed a "wedding ring and other jewelry" having an unknown value. (J.A. at 11.) This jewelry was claimed as exempt on Schedule C under Tennessee Code Annotated § 26-2-104. The Debtor stated that the amount of the exemption and the market value of the jewelry was unknown. On October 25, 2005, George W. Emerson was appointed chapter 7 trustee. He was succeeded on April 4, 2006, by Norman P. Hagemeyer ("Trustee").

In 2004, before the commencement of the Debtor's case, the Debtor's husband, Dr. Morris Lebovitz, filed a bankruptcy case. Because Dr. Lebovitz is no longer able to practice medicine, he receives disability income of $16,000 per month. The bankruptcy court took judicial notice that Dr. Lebovitz received his bankruptcy discharge on September 16, 2005. After commencement of Dr. Lebovitz's case, it was discovered that the Debtor co-signed a large loan. As a result, she filed her separate chapter 7 case.

The bankruptcy court found that Dr. Lebovitz and the Debtor have been married for a number of years and have four children. Additionally, the court found that although the Debtor has a real estate license, she is not actively engaged in marketing or selling real estate.

The Debtor owns five pieces of jewelry claimed as exempt. One of them is a five carat diamond wedding ring purchased by Dr. Lebovitz for between $40,000 and $50,000.¹ The Debtor wears this ring daily. It was purchased by Dr. Lebovitz several years after their wedding to replace the Debtor's original wedding ring.² Second, the Debtor claimed exempt a pair of diamond stud earrings which are slightly under one carat each. The earrings were given to the Debtor by Dr. Lebovitz approximately eleven years earlier when their first daughter was born. These earrings are worn by the Debtor weekly. Third, the Debtor claimed exempt a diamond drop necklace which aggregates approximately one and one-half carats. This necklace was given to the Debtor by Dr. Lebovitz when their second daughter was born. The Debtor wears this necklace several times a month. Fourth, a diamond tennis bracelet given to the Debtor by her husband as a birthday gift was claimed exempt. It is unknown how often this bracelet is worn. Fifth, claimed exempt is a Cartier watch purchased by the Debtor's husband as a Mother's Day gift. The Debtor stated the watch is not operable, but previously was worn daily. As requested by the Trustee, the Debtor consulted with jewelers to obtain an estimated value of the jewelry. Three jewelers offered to purchase all of the items, with the exception of the wedding ring. A fourth jeweler offered to purchase all of the items for a total of $14,800. He valued the Tiffany wedding ring at $8,000.

On March 8, 2006, the Trustee filed a Motion for Turnover of Property to the Estate. He sought turnover of the exempted jewelry. The Debtor objected. The Trustee also objected to the Debtor's claim of exemptions. An evidentiary hearing regarding these contested matters was held on May 4, 2006. The Debtor testified that the value of her Tiffany wedding ring is $8,000 and that the aggregate value of the remaining items is $6,000. After the conclusion of the hearing, and before a ruling by the bankruptcy court, the Debtor filed amendments to Schedules B and C asserting values, consistent with her prior testimony, of her jewelry as follows: (1) wedding ring — $8,000; (2) necklace — $2,500; (3) earrings — $2,000; (4) tennis bracelet $1,000; and (5) Cartier watch — $1,500.

The Trustee subsequently filed another objection to the Debtor's amended claim of exemptions. He objected because the Debtor's values were wholesale values and asserted that the exemptions were legally improper. The Trustee also submitted the affidavit of Les Savell, the same jeweler relied upon by the Debtor to support her stated values at the evidentiary hearing. The affidavit reiterates Savell's prior offer to purchase the jewelry and states that the estimated values are based upon a wholesale valuation. The affidavit further states that retail value is at least double the wholesale value.

After first relying upon Savell's valuation at the evidentiary hearing, but not agreeing with his subsequent affidavit, the Debtor moved to strike Savell's affidavit because (1) it was presented after the close of proofs, (2) it supposedly constituted hearsay, and (3) she was not given an opportunity to cross examine Savell. As her principal argument, the Debtor asserts that value is irrelevant because the Tennessee exemption statute has no monetary limitation whatsoever.

The Trustee responded that the Debtor failed to adequately declare the value of the jewelry before, or at, the hearing. He argues that Savell's affidavit is proper to rebut or supplement the Debtor's statements about Savell's prior opinion of the value of the jewelry.

The bankruptcy court determined that the Tennessee exemption is limited to wearing apparel which is "necessary and proper." Because there was no evidence offered at the evidentiary hearing that the jewelry is needed by the Debtor for current or future employment, the bankruptcy court determined that the jewelry was not "necessary and proper." Utilizing the analysis of In re Hazelhurst, infra, the court found that all the items of exempted jewelry were "luxury" items. The court also found that the Debtor suffered no prejudice by the...