In re Lester, Bankruptcy No. C-2-91-111.
| Decision Date | 24 July 1991 |
| Docket Number | Bankruptcy No. C-2-91-111. |
| Citation | 141 BR 157 |
| Parties | In re Mickel D. LESTER, Nancy J. Lester, Debtors-Appellants. Mickel D. LESTER, Nancy J. Lester, Appellants, v. Robert STOREY, Trustee, Appellee. |
| Court | U.S. District Court — Southern District of Ohio |
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Leslie Varnado, Jr., The Legal Aid Soc. of Columbus, Columbus, Ohio, for debtors-appellants.
Robert Storey, Columbus, Ohio, Chapter 7 Trustee.
Charles M. Caldwell, Office of U.S. Trustee, Columbus, Ohio, U.S. Trustee.
This matter comes before the Court to consider the appeal of Mickel D. Lester and Nancy J. Lester from an order of the United States Bankruptcy Court for the Southern District of Ohio. District Courts have jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges. 28 U.S.C. § 158(a); Bankr.R. 8001.
The relevant facts are both straightforward and undisputed. On December 12, 1987, Nancy J. Lester1 was admitted to the emergency room of St. Ann's Hospital in Westerville, Ohio as a result of a seizure disorder. While in the emergency room, Lester suffered a seizure, and as a result of her elbow being locked between the bed and the side rail, she suffered a fracture/dislocation of the right shoulder. Two days later, Lester was released from St. Ann's Hospital. Her shoulder injury, however, required her to visit Northside Physical Therapy, Inc. for a total of nine visits in January and February of 1988.
Because of this injury, Lester retained the services of an attorney, and on April 7, 1989 she received a malpractice settlement from the hospital in the amount of $10,000. The settlement payment was in one lump sum, and it is not clear from the settlement payment or the signed release of all legal claims how much of the $10,000 represents payment for pain and suffering, actual pecuniary loss, the injury itself, etc.
Of the $10,000 received in settlement, $3,333.33 was deducted for attorney fees, $525.00 for expenses for medical reports, and $47.00 for expenses for medical records. Thus, Lester's net proceeds from the settlement totalled $6,094.67.2
On March 17, 1989 — less than a month prior to the settlement with St. Ann's Hospital — Lester filed a Chapter 7 Petition in the United States Bankruptcy Court. As originally filed, the contingent personal injury claim was not listed in Schedule B-2 and no exemption was claimed in Schedule B-4. This omission was corrected on August 17, 1989 when Lester filed an amended list of assets and exemptions. In the amendments, Lester claimed as exempt $5,000 of the settlement she received from St. Ann's Hospital. On August 31, 1989, the Trustee filed the objection which is the subject of dispute before this Court.
On October 4, 1990, the bankruptcy court held a hearing to consider the Trustee's objection to Lester's claimed exemption. At the hearing, only the Debtor presented evidence, including both Nancy Lester's testimony and a series of documents relating to the injury, medical expenses, lost wages, etc. On November 26, 1990, the bankruptcy court issued an Order and Opinion denying the exemption. The Debtor seeks review of the bankruptcy court's decision.
Bankruptcy Rule 8013 states:
On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge\'s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
Thus, with respect to any factual issues, the findings of the bankruptcy judge are entitled to great deference. However, with respect to questions of law, the bankruptcy court's determinations are not entitled to any substantial deference, and the bankruptcy court's legal conclusions are subject to de novo review by this Court. In re Branding Iron Motel, Inc., 798 F.2d 396 (10th Cir.1986).
The Bankruptcy Act of 1978 permits an individual debtor a choice between two alternative exemption systems. The debtor may choose the statutorily listed uniform bankruptcy exemptions, 11 U.S.C. § 522(b), or the exemptions to which the debtor is entitled under applicable nonbankruptcy federal and state law. 11 U.S.C. § 522(d). Where a state expressly provides, the debtor may be prohibited from electing the list of uniform exemptions.
Using this authority, Ohio has "opted-out" of the specific exemption scheme provided by the Bankruptcy Code. Thus, an Ohio bankruptcy debtor may claim property as exempt from her bankruptcy estate only if Ohio law permits such exemption from the claims of creditors. Ohio Rev. Code § 2329.662.
Ohio Rev.Code § 2329.66(A)(12) provides, in part:
Accordingly, a debtor can claim as exempt up to $5,000 of any payment on account of personal bodily injury, excluding amounts compensating the debtor for pain and suffering and actual monetary loss. Difficulty often arises, as it does in this case, where a debtor receives money as a result of a lump sum award or general jury verdict, since such awards frequently fail to divide any of the money into its various component parts (i.e., money for pain and suffering, lost past and future wages, loss of consortium, etc.). Who has the initial burden of proving which parts of the award represent compensation for the various exempt and non-exempt categories is the question of law before this Court.
When a party objects to a debtor's claim of exemption, it is the burden of the objecting party to prove that the exemption is not properly claimed. Bankruptcy Rule 4003(c). This burden is satisfied where the objecting party introduces evidence which rebuts the "prima facie effect of the claim of exemption." In re Hollar, 79 B.R. 294 (Bankr.S.D.Ohio 1987) (Sellers, J.). Such a rebuttal shifts the burden to the debtor to demonstrate that the exemption is proper.
In the action before this Court, the Debtor claimed $5,000 of the malpractice settlement as exempt under Ohio Rev. Code § 2329.66(A)(12)(C). Thus, it is her implied contention that at least $5,000 of the settlement represents an award other than for pain and suffering or actual pecuniary loss, which are both specifically non-exempt under the Ohio statute.
The Trustee claims, and the bankruptcy court agreed, that although the Trustee ultimately has the burden of proof with respect to any objections filed by the Trustee, the Ohio statute requires the Debtor to allocate any amounts received in a personal injury settlement into its various component parts — such as pain and suffering, loss of consortium, actual pecuniary loss, etc. This requirement, the Trustee claims, enables him to decide whether to object to a claimed exemption as compensation for pain and suffering or actual pecuniary loss, and therefore non-exempt under Ohio Rev. Code § 2329.66(A)(12)(c).
Initially, this Court must disagree with the bankruptcy court's conclusion that the Trustee, as the objecting party, "met his initial burden of demonstrating that the Debtor's claimed exemption is inappropriate by showing that the Debtors failed to allocate the award to show that any payments were for personal bodily injury." In re Lester, 124 B.R. 63, 65 (Bankr.S.D.Ohio 1990). Such a holding imputes to the debtor an obligation that simply does not exist, and fails to require the Trustee to meet his burden of producing evidence in support of his objection. Simply put, the Trustee does not satisfy his burden merely by pointing to the Debtor's failure to allocate the settlement into its component parts, and § 2329.66(A)(12)(c) does not require otherwise. Indeed, a state cannot shift the burden of proof in a manner inconsistent with Bankruptcy Rule 4003(c). While the Bankruptcy Code allows states to opt out of the federal exemption scheme and create an alternative list of exemptions, the Code does not in any manner provide a state with the ability to override the procedural requirements of Rule 4003(c). See, e.g., 5 Fed.Proc., L.Ed. § 9:368 ().
Thus, to the extent the bankruptcy court below placed upon the Debtor the burden of proving the allocation of her personal injury settlement into the various exempt and non-exempt categories, that decision was erroneous and is reversed. Rather, the interplay between the federal Bankruptcy Code and Rules and the Ohio exemption statutes suggests that the Debtor need only characterize her settlement amount as falling within an exempt category; the Debtor need not allocate any amounts into exempt categories, at least if the term "allocate" is intended to suggest that the Debtor must make some affirmative evidentiary showing.3
Therefore, the plain meaning of Bankruptcy Rule 4003(c) leads this Court to hold that the burden of proof is initially placed upon the Trustee with respect to any objections he files, and that this burden does not shift to the Debtor merely upon a showing that the Debtor has failed to allocate the personal injury settlement into its various component parts. Rather, as long as the Debtor either expressly or impliedly char...
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