In re LoCurto, Bankruptcy No. 99-00983-5-ATS.
| Decision Date | 22 September 1999 |
| Docket Number | Bankruptcy No. 99-00983-5-ATS. |
| Citation | 239 BR 314 |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | In re Ellen Grayce LoCURTO, Debtor. |
Jeffrey M. Seigle, Raleigh, NC, for debtor.
Richard D. Sparkman, Richard D. Sparkman & Assoc., Angier, NC, Chapter 7 Trustee.
The matter before the court is the objection filed by the chapter 7 trustee, Richard D. Sparkman, to the exemptions claimed by the chapter 7 debtor, Ellen Grayce LoCurto. A hearing was held in Raleigh, North Carolina on September 1, 1999.
Ms. LoCurto filed a petition for relief under chapter 7 of the Bankruptcy Code on May 5, 1999. Prior to filing the petition Ms. LoCurto entered into a settlement of a lawsuit against the National Press Photographers Association, Inc. ("NPPA") that was pending in the Superior Court for Durham County, North Carolina (Case No. 98-CVS-02882). Ms. LoCurto received $50,000, net of attorney's fees of $15,000, from the settlement, but did not list the settlement proceeds on her bankruptcy schedules. Ms. LoCurto's first chapter 7 trustee, Holmes P. Harden, learned of the settlement and notified Ms. LoCurto's attorney, Jeffrey M. Seigle, that the settlement proceeds had not been included in the schedules. Shortly thereafter the debtor amended her schedules to include the settlement proceeds and also amended her exemptions to claim the settlement proceeds as exempt under North Carolina General Statute § 1C-1601(a)(8).
Mr. Sparkman replaced Mr. Harden as the debtor's trustee and objected to the debtor's claim that the settlement proceeds are exempt. According to Mr. Sparkman, the amended exemption should be disallowed because the debtor did not initially list the settlement on her bankruptcy schedules. Additionally, the trustee contends that the settlement proceeds should not be exempt under North Carolina General Statute § 1C-1601(a)(8) because the settlement does not constitute compensation for personal injury as required by the statute.
As a general rule, amendments are liberally allowed, and Rule 1009 contains no limitation of the debtor's right to amend. The United States Court of Appeals for the Fourth Circuit in construing an amendment to exemptions made under former Bankruptcy Rule 110, which the court stated is essentially the same rule as present Rule 1009, held that "a court ordinarily does not have discretion to deny leave to amend or to require a showing of good cause." In re Tignor, 729 F.2d 977, 978 (4th Cir.1984). However, the court also observed that "exceptional circumstances may prevent the debtor in bankruptcy from amending his petition or schedules," citing In re Doan, 672 F.2d 831, 833 (11th Cir.1982), Tignor, 729 F.2d at 979. Some courts have precluded debtors from amending their schedules to claim exemptions in exceptional circumstances. The bankruptcy court in In re Gregoire, 210 B.R. 432 (Bankr.D.R.I.1997) denied an amended exemption because of the debtor's bad faith in filing his schedules.
The debtor contends that there was no bad faith on her part in failing to list the settlement proceeds on her bankruptcy schedules. According to Ms. LoCurto (and her attorney), she reviewed the petition and schedules in her attorney's office on March 17, 1998, and advised her attorney, Mr. Seigle, that the schedules were incorrect because the pending lawsuit was not included. Mr. Seigle did not correct the schedules, and when Ms. LoCurto signed the petition in his office on April 4, 1998, she again advised him that the proposed settlement of the lawsuit should be included. Mr. Seigle did not make the correction, and the incorrect petition was filed a month later on May 5, 1998, four days after the settlement was finalized.
The trustee contends that even if the failure to correct the schedules was the fault of debtor's counsel, Ms. LoCurto is ultimately responsible for the accuracy of her schedules and that because the schedules are erroneous she should be barred from claiming the settlement proceeds as exempt.
It is apparent to the court that the failure to list the settlement proceeds is not the only problem with the debtor's schedules; the values she placed on her jewelry seem unrealistically low. Nevertheless, the court finds that with respect to the settlement proceeds, the petition and her schedules were not filed in bad faith. The omission of the settlement was the fault of Ms. LoCurto's attorney, Mr. Seigle, and Ms. LoCurto relied on him to see that the schedules were corrected. Furthermore, the trustee is not prejudiced by the fact that the exemption was not claimed when the petition was filed. See Tignor, 729 F.2d at 979. Consequently, exceptional circumstances do not exist to preclude Ms. LoCurto from amending her schedules to claim the settlement proceeds as exempt.
N.C.GEN.STAT. § 1C-1601(a)(8) (1998).
According to the debtor, the settlement was to compensate her for personal physical injury and should be exempt. Specifically, she contends that her physical injuries were mental distress leading to insomnia, abdominal reflux, anxiety and depression. The trustee maintains that the settlement was compensation for breach of contract and economic loss, not for personal injury, and is therefore not exempt under § 1C-1601(a)(8). The trustee has the burden of proof pursuant to Rule 4003(c) of the Federal Rules of Bankruptcy Procedure.
The Settlement Agreement and Release provides for a payment to Mrs. LoCurto of $65,000, $15,000 of which is for attorney's fees, and characterizes the settlement as payment for "non-economic tort and tort-type losses in the form of physical injury and physical sickness." The agreement in ¶ 1 reads as follows:
. . . . The payment referred to above is for LoCurto\'s alleged claim that she suffered non-economic tort and tort-type losses in the form of personal physical injury and physical sickness as a result of the end of her...
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