In re McGowan

Decision Date26 October 1998
Docket NumberBAP No. 98-6031MN.
Citation226 BR 13
PartiesIn re Mark John MCGOWAN, Debtor, Mark John MCGOWAN, Debtor—Appellant, v. Charles W. RIES, Trustee—Appellee.
CourtU.S. Bankruptcy Appellate Panel, Eighth Circuit

Thomas E. Johnson, Minneapolis, MN, for Appellant.

Kenneth R. White, Mankato, MN, for Appellee.

Before KOGER, Chief Judge, SCHERMER and MIXON,1 Bankruptcy Judges.

KOGER, Chief Judge.

Mark John McGowan, the debtor, appeals from the portion of the bankruptcy court's2 order entered on April 2, 1998, in which the court sustained the objection filed by Charles W. Ries, the Chapter 7 Trustee, to McGowan's claimed homestead exemption in real property. McGowan appeals, asserting that the Trustee's objection was untimely under Minnesota Local Bankruptcy Rule 2003-1 and that the bankruptcy court improperly used its equitable powers under 11 U.S.C. § 105(a) to consider the untimely objection. In support of affirmance, the Trustee argues that his objection was timely under Federal Rule of Bankruptcy Procedure 4003(b) and to the extent Minnesota Local Bankruptcy Rule 2003-1 conflicts with Federal Rule 4003(b), the local rule is unenforceable. Alternatively, the Trustee asserts that Minnesota Local Bankruptcy rule 2003-1 and Federal Rule 4003(b) should be interpreted together in a manner that is consistent with allowance of the objection under Federal Rule 4003(b). McGowan responds that this Court may not consider the invalidity of Local Rule 2003-1 or otherwise consider possible errors in the bankruptcy court's interpretation of Local Rule 2003-1 and Federal Rule 4003(b) because the Trustee did not file a cross-appeal to preserve those issues. The Trustee urges that no cross-appeal is necessary and that this Court may affirm the bankruptcy court's order on any grounds, even on grounds rejected by the trial court. Finally, the Trustee contends that if this Court agrees that the objection was untimely, then the bankruptcy court was correct in employing its powers under 11 U.S.C. § 105 to entertain the objection. We affirm.

Statement of Facts

On January 31, 1997, McGowan filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. McGowan filed all of his bankruptcy schedules and statements on that date. In his schedules, McGowan claimed a homestead exemption in the following described real estate: Lot 13, Block 1, East Abbott's Addition, Owatonna, Steele County, Minnesota.

On February 3, 1997, Michael Dietz was appointed interim trustee. The section 341 meeting of creditors was originally scheduled to be held on February 28, 1997. On February 21, 1997, Dietz determined that he had a conflict of interest and resigned as interim trustee. On that same date, Ries was appointed as successor, interim trustee. The section 341 meeting was then rescheduled for April 11, 1997, and all parties were served with notice of the rescheduled meeting. Ries conducted and concluded the section 341 meeting on April 11, 1997.

On April 23, 1997, Ries filed an objection to McGowan's claimed homestead exemption. McGowan resisted, asserting that Ries' objection was untimely pursuant to Minnesota Local Bankruptcy Rule 2003-1 because Ries had not filed an objection within 30 days of the first scheduled meeting of creditors, nor taken other action to advise that the section 341 meeting did not conclude on the date originally scheduled. McGowan's argument derives from the language of Local Rule 2003-1, which states in relevant part that "for purposes of Bankruptcy Rule 4003(b), the meeting of creditors shall be deemed concluded on the first date set for such meeting, unless within 30 days after such date the trustee serves and files a verified statement that the meeting has not been concluded." Minn. Loc. Bankr.R.2003-13 (emphasis added). Because Federal Rule of Bankruptcy Procedure 4003(b) requires a trustee or any creditor to file an objection to the debtor's claimed exemptions "within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a)," Fed. R. Bankr.P. 4003(b)4 (emphasis added), McGowan contends that Ries' April 23rd objection was untimely.

In an order entered on April 2, 1998, the bankruptcy court ruled that Ries' objection was untimely under Local Rule 2003-1 and Federal Rule 4003(b). However, the bankruptcy court determined sua sponte that it would apply 11 U.S.C. § 105(a)5 to consider Ries' untimely objection based upon evidence, learned during the intervening year, that McGowan had provided false testimony concerning his homestead property at the section 341 meeting of creditors. Specifically, McGowan testified that he occupied the property claimed exempt as his homestead, even though Ries subsequently demonstrated that McGowan did not occupy the property, but rather rented it to third parties. Based upon these facts, the bankruptcy court found that the debtor abandoned his homestead in the subject real property and granted Ries' objection to the claimed homestead exemption in its April 2, 1998, order.

Bankruptcy Appellate Panel Jurisdiction

McGowan timely filed his notice of appeal with the Bankruptcy Appellate Panel on April 10, 1998, from the bankruptcy court's April 2, 1998, order granting Ries' objection to the homestead exemption. See Fed. R. Bankr.P. 8002(a). The "`grant or denial of a claimed exemption is a final appealable order from a bankruptcy proceeding.'" In re Brayshaw, 912 F.2d 1255, 1256 (10th Cir.1990) (citation omitted). This Court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1), 28 U.S.C. § 158(b)(6) and 28 U.S.C. § 158(c).

Issues Raised on Appeal

I. Whether Ries can raise the issue of the construction of Minnesota Local Bankruptcy Rule 2003-1 in comparison to Federal Rule of Bankruptcy Procedure 4003(b) even though he did not file a cross-appeal?

II. Whether Minnesota Local Bankruptcy Rule 2003-1 conflicts with Federal Rule of Bankruptcy Procedure 4003(b)?

III. Whether the bankruptcy court erred by invoking 11 U.S.C. § 105(a) as a means to consider Ries' objection to the homestead exemption?

Standard of Review on Appeal

Each issue involves questions of law over which this Court exercises de novo review. See First Nat'l Bank v. Allen, 118 F.3d 1289, 1294 (8th Cir.1997). Normally, a bankruptcy court's exertion of authority under section 105(a) is subject to an abuse of discretion standard of review. See In re Yukon Energy Corp., 138 F.3d 1254, 1260 (8th Cir.1998). However, "a court abuses its discretion if it rests its conclusion on clearly erroneous factual findings or an incorrect legal standard." In re Cossio, 163 B.R. 150, 153 (9th Cir. BAP 1994), aff'd, 56 F.3d 70 (9th Cir.1995). The Eighth Circuit Court of Appeals has opined that:

When we say that a decision is discretionary . . . we do not mean that the district court may do whatever pleases it. The phrase means instead that the court has a range of choice, and that its decision will not be disturbed as long as it stays within that range and is not influenced by any mistake of law.

Kern v. TXO Prod. Corp., 738 F.2d 968, 970 (8th Cir.1984). Here, whether the bankruptcy court abused its discretion by applying 11 U.S.C. § 105(a) to extend the time period in Federal Rule 4003(b) depends upon whether the application of section 105(a) was allowed under the law.

Discussion
I. Whether Ries can raise the issue of the construction of Minnesota Local Bankruptcy Rule 2003-1 in comparison to Federal Rule of Bankruptcy Procedure 4003(b) even though he did not file a cross-appeal?

As argued before the bankruptcy court, Ries asserts that Minnesota Local Bankruptcy Rule 2003-1 is invalid and unenforceable because it conflicts with Federal Rule of Bankruptcy Procedure 4003(b). As an alternative argument, Ries claims that Minnesota Local Bankruptcy Rule 2003-1 is not in conflict with Federal Rule of Bankruptcy Procedure 4003(b) and is, therefore, valid, if the language of the Local Rule is construed to create only a rebuttable presumption that the section 341 meeting was concluded in the absence of a filed statement to the contrary. The bankruptcy court rejected both of Ries' arguments stating that:

Local Rule 2003-1 differs from the local rule invalidated in In re Falk, 96 B.R. 901 (Bankr.D.Minn.1989) (en banc). F.R.Bankr.P. 4003(b) provides that objections to exemptions must be filed "within 30 days after the conclusion of the meeting of creditors." Local Rule 2003-1 provides that "the meeting of creditors shall be deemed concluded on the first date set for such meeting" (emphasis added). The purpose of 2003-1 is to determine the date of the conclusion of the meeting of creditors absent the filing of a contrary affidavit by the trustee for purposes of application of F.R.Bankr.P. 4003(b). By "deeming" the meeting concluded, the local rule merely creates an irrebuttable presumption, in the absence of a contrary affidavit, as to the date the meeting is concluded; thereby precluding any argument as to the date the meeting was actually concluded. The local rule involved in Falk generally extended the time to object to discharge without any requisite finding of cause in each case, as explicitly required by F.R.Bankr.P. 9006(b)(3) and 4007(c).
The creation of an irrebuttable presumption setting a date for the conclusion of the meeting of creditors through Local Rule 2003-1 is not inconsistent with F.R.Bankr.P. 4003(b). By "deeming" the meeting concluded absent contrary affidavit, the period to object is not automatically shortened. If the period to object is shortened from the actual conclusion of the first meeting, as was the case here, it is due to the failure of the trustee to file the requisite affidavit; not due to passive application, or natural consequence of the Rule. Therefore, Local Rule 2003-1 is not inconsistent with F.R.Bankr.P. 4003(b).
Accordingly, the Trustee had 30 days from the date first set for the meeting of creditors to
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