In re Scott

• Decision Date: 09 June 2015
• Docket Number: CASE NO. 14–13788–NPO
• Citation: 531 B.R. 640
• Parties: In re: Ollie Leon Scott, Sr. and Samantha Dye Scott, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Mississippi

531 B.R. 640

In re: Ollie Leon Scott, Sr. and Samantha Dye Scott, Debtors.

CASE NO. 14–13788–NPO

United States Bankruptcy Court, N.D. Mississippi.

Signed June 9, 2015

John M. Sherman, Clarksdale, MS, Rogen K. Chhabra, Chhabra & Gibbs, P.A., Jackson, MS, for Debtors.

MEMORANDUM OPINION AND ORDER DENYING MOTION TO COMPEL AND REQUIRING THE DEBTORS TO AMEND THEIR SCHEDULE C—PROPERTY CLAIMED AS EXEMPT

Judge Neil P. Olack, United States Bankruptcy Judge

This matter came before the Court for hearing on May 14, 2015 (the “Hearing”) on the Motion to Compel (the “Motion to Compel”) (Dkt.42) filed by Locke D. Barkley, the standing chapter 13 trustee (the “Trustee”), and the Objection to Motion to Compel (the “Response”)¹ (Dkt.48) filed by the debtor, Samantha Dye Scott (“S. Scott” or, together with Ollie Leon Scott, Sr., the “Debtors”), in the above-styled bankruptcy case (the “Bankruptcy Case”). At the Hearing, W. Jeffrey Collier (“Collier”) appeared on behalf of the Trustee, and Amanda G. Hill (“Hill”) of the law firm, Chhabra & Gibbs, P.A. appeared on behalf of S. Scott. The Court, being fully advised in the premises, finds as follows:

Jurisdiction

The Court has jurisdiction over the parties to and the subject matter of this case pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O). Notice of the Motion to Compel was proper under the circumstances.

Facts

1. On October 8, 2014, the Debtors filed a joint petition for relief (the “Petition”) (Dkt.1) pursuant to chapter 13 of the Bankruptcy Code.

2. On October 23, 2014, the Debtors filed their statements and schedules regarding their current income, expenses, and creditors. (Dkt.12). On Schedule B—Personal Property, the Debtors listed a “Claim for personal injuries” as a contingent and unliquidated claim with a current value of “unknown.” (Id. at 5–6). The Debtors listed the contact information of Chhabra & Gibbs, P.A. under the description of the “Claim for personal injuries.” On Schedule C—Property Claimed as Exempt (the “Original Schedule C”) (Id. at 8), the Debtors did not list any property regarding a claim for personal injuries or a worker's compensation claim nor did the Debtors otherwise mention the law firm of Chhabra & Gibbs, P.A.

3. On December 4, 2014, the Debtors filed Schedule B—Personal Property—Amended (the “Amended Schedule B”) (Dkt. 34 at 1–4) and Schedule C—Property Claimed as Exempt—Amended (the “Amended Schedule C”) (Id. at 5). In Amended Schedule B, the Debtors changed the description “Claim for personal injuries” to “workers compensation claim.” In Amended Schedule C, the Debtors added the following property:

Description of PropertySpecify Law Providing Each ExemptionValue of Claimed ExemptionCurrent Value of Property Without Deducting ExemptionWorkers compensation claimMiss. Code Ann. § 71–3–43100%UnknownChabbra [sic ] & GibbsAttorneys at LawThe Plaza Building 120 North Congress St., Suite 200 Jackson, MS 39201   

(Id. )²

4. On March 12, 2015, the Trustee filed the Motion to Compel requesting the Court to issue an order compelling Chhabra & Gibbs³ to file an application for approval to be employed as counsel for S. Scott in compliance with 11 U.S.C. § 327,⁴ § 328, and Rule 2014.

5. On May 4, 2015, Hill filed the Response on behalf of S. Scott. In the Response, Hill requested the Court to deny the Motion to Compel because § 327 and § 328 are not applicable to an attorney representing a debtor in pursuing a worker's compensation claim because such claims are exempt under Miss. Code Ann. § 71–3–43.

6. At the Hearing, Collier and Hill stipulated that the Scott Worker's Compensation Claim has been pending since before the Petition date and that it is S. Scott, and not the Trustee, who is pursuing that claim. Collier argued that while the claim may be subject to exemption from distribution to creditors, it is still an asset of S. Scott's bankruptcy estate. Collier also stated that he understands there is the potential for a settlement of the Scott Worker's Compensation Claim that would require approval of the Bankruptcy Court. Hill contrarily argued that because the Scott Worker's Compensation Claim is exempt under Mississippi law, Chhabra & Gibbs is not subject to any of the Bankruptcy Code's provisions regulating the employment of attorneys, the compensation of attorneys, or the disclosure and approval of settlements or compromises.

Discussion

In the Motion to Compel, the Trustee requests the Court to compel Chhabra & Gibbs to file an application to be employed as special counsel in compliance with § 327, § 328 and Rule 2014. At the Hearing, the Trustee specifically argued that Chhabra & Gibbs is required to file an application to be employed under § 327(e), which governs the employment of special counsel. Hill, on the other hand, argued that because the Scott Worker's Compensation Claim is exempt under state law, Chhabra & Gibbs is not subject to § 327(e) or any of the Bankruptcy Code's provisions regulating the employment of attorneys, their compensation, or the settlements of claims. The Court initially notes that by filing the Petition, the Debtors subjected themselves to the jurisdiction of this Court and its authority under the Bankruptcy Code. See Stanley v. Trinchard, 579 F.3d 515, 519 (5th Cir.2009) (“The subject of bankruptcy falls within the express constitutional powers of Congress, and bankruptcy law therefore takes precedence over state laws under the Supremacy Clause.”) (citing U.S. Const. , art. VI). Thus, the Debtors are subject to the Bankruptcy Code's applicable provisions, including those regulating their employment of counsel and their pursuit of causes of action, without regard to conflicting state law. With that being said, for the reasons stated later in this Opinion, the Court finds that S. Scott's employment of Chhabra & Gibbs is not subject to the requirements of § 327, § 328, or Rule 2014.

Before considering the applicability of § 327, § 328, and Rule 2014 to S. Scott's employment of Chhabra & Gibbs in pursuing the Scott Worker's Compensation Claim, the Court discusses the Debtors' Amended Schedule C and the general procedure for claiming property as exempt. When a debtor files a petition for relief under the Bankruptcy Code, “all legal or equitable interests of the debtor in property as of the commencement of the case” generally becomes property of the bankruptcy estate. 11 U.S.C. § 541(a)(1). Property of the estate includes any pre-petition causes of action belonging to the debtor and their proceeds. See Wischan v. Adler (In re Wischan), 77 F.3d 875, 877 (5th Cir.1996). The debtor may then be able to reclaim certain property from the bankruptcy estate by claiming it as exempt. 11 U.S.C. § 522 ; In re Pace, 521 B.R. 124, 126 (Bankr.N.D.Miss.2014) ; Viegelahn v. Frost (In re Frost), 744 F.3d 384, 386–87 (5th Cir.2014). A debtor is required to list the property claimed as exempt in their bankruptcy schedules. 11 U.S.C. § 522(l ) ; Fed. R. Bankr. P. 4003(a). Pursuant to § 522(l ), property claimed by the debtor as exempt will be determined excluded from the bankruptcy estate “[u]nless a party in interest objects.” 11 U.S.C. § 522(l ). Rule 4003(b) establishes the deadlines for objections to a debtor's claimed exemptions. Fed. R. Bankr. P. 4003(b). Under Rule 4003(b), a party in interest may object to a debtor's exemption within thirty (30) days after (a) the § 341(a) meeting of creditors is concluded or (b) after the list of property claimed as exempt is amended, whichever is later. Id.

Here, the Debtors did not list the Scott Worker's Compensation Claim on Original Schedule C. Instead, on December 4, 2014, the Debtors filed Amended Schedule C, which lists the Scott Worker's Compensation Claim as property claimed as exempt. Rule 1009(a) provides, inter alia, that a debtor may amend any list, schedule or statement “as a matter of course at any time before the case is closed” but that the debtor must “give notice of the amendment to the trustee and to any entity affected thereby.” Fed. R. Bankr. P. 1009(a). According to the Advisory Committee Note to Rule 1009(a), this notice requirement “is particularly important with respect to any amendment of the schedule of property affecting the debtor's claim of exemptions.”Fed. R. Bankr. P. 1009, Advisory Committee Note (1983).

To ensure that the notice required under Rule 1009(a) is properly given, this Court adopted Local Rule 4003 –1(a) (“Local Rule 4003–1(a)”), which provides:

Any amendment to a claim of exemptions pursuant to Fed. R. Bankr. P. 1009 and 4003 shall be filed and served by the debtor on the trustee, the United States Trustee, and all creditors, together with a notice of amendment which states a party in interest may file an objection to the list of property claimed as exempt within the later of (i) 30 days after the meeting of creditors held under section 341(a) is concluded or (ii) 30 days after any amendment to the list or supplemental schedules is filed. The debtor also shall file a certificate of service reflecting that the amendment and notice of amendment were duly served.

Miss. Bankr. L.R. 4003–1(a). In the Bankruptcy Case, the Debtors filed Amended Schedule C, but apparently did not serve the Trustee, the United States Trustee, or all of the Debtors' creditors with a copy of Amended Schedule C or a notice of the amendment providing the deadlines for objecting to the list of the property claimed as exempt. Indeed, the Debtors have never filed a certificate of service reflecting that Amended Schedule C and an accompanying notice were duly served. For these reasons, the Court finds that the Debtors have not properly amended Original Schedule C under Rule 1009 or Local Rule 4003 –1(a). As such, the Debtors have failed to properly claim the Scott Worker's Compensation Claim as exempt. Accordingly, the Court finds that the Debtors should amend their Original Schedule C again to list the Scott Worker's Compensation Claim as exempt in...