In re Scrivner, BAP No. 06-122.

CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit
Writing for the CourtThurman
Citation370 B.R. 346
PartiesIn re Toby SCRIVNER and Angelique Pisano, Debtors. Toby Scrivner and Angelique Pisano, Appellants, v. John D. Mashburn, Trustee, Appellee.
Docket NumberBAP No. 06-122.,Bankruptcy No. 05-30226 - WV.
Decision Date20 June 2007
370 B.R. 346
In re Toby SCRIVNER and Angelique Pisano, Debtors.
Toby Scrivner and Angelique Pisano, Appellants,
John D. Mashburn, Trustee, Appellee.
BAP No. 06-122.
Bankruptcy No. 05-30226 - WV.
United States Bankruptcy Appellate Panel of the Tenth Circuit.
June 20, 2007.

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Submitted on the briefs:* Sam George Caporal and Mark W. Hayes, Oklahoma City, OK, for Appellants.

John D. Mashburn, Garvin, Agee, Carlton & Mashburn, P.C., Edmond, OK, for Appellee.

Before McFEELEY, Chief Judge, CLARK, and THURMAN, Bankruptcy Judges.


THURMAN, Bankruptcy Judge.

Toby Scrivner and Angelique Pisano (the "Debtors") appeal an order authorizing the trustee to "surcharge" the Debtors' exempt assets to collect the value of property of the estate not turned over pursuant to an earlier court order. For the reasons stated below, the decision of the bankruptcy court is AFFIRMED.


The Debtors filed for Chapter 7 bankruptcy relief on October 14, 2005. John Mashburn, the Appellee in this case, was

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appointed the Chapter 7 trustee (the "Trustee"). At the time of filing, the Debtors' only significant source of income was funds received each month for a .5% interest in a television show called "Cheaters," which they disclosed on their Bankruptcy Schedules. They did not initially claim an exemption for their interest in Cheaters, and on June 1, 2006, after notice and hearing, the bankruptcy court issued an Order Granting Trustee's Motion to Turn Over (the "Turnover Order") requiring the Debtors to turn over the income received from Cheaters post-petition (the "Cheaters Funds").1

The Debtors did not appeal the Turnover Order and failed to surrender the Cheaters Funds (approximately $17,000), some $13,000 of which was received after the Debtors received notice of the Trustee's Turnover Motion. In response, the Trustee served the producer of Cheaters with a copy of the Turnover Order and demanded that Cheaters begin paying the monthly payments directly to the Trustee. The Trustee also filed a Motion for Contempt and to Surcharge Debtor's Exemptions (the "Surcharge Motion"). The Debtors filed a written objection and the Court conducted a contested hearing on the Surcharge Motion on October 17, 2006, upon proper notice.2 The bankruptcy court issued an Order granting the Surcharge Motion (the "Surcharge Order") on October 24, 2006. Specifically, the bankruptcy court ordered the Debtors to surrender and turn over to the Trustee $17,424.75 plus interest and $1,300 as a "reasonable attorney fee incurred by the Trustee in bringing this Motion."

The Order further provided:

5. In the event said funds are not delivered to the Trustee by November 6, 2006, then the Trustee may surcharge and is hereby granted a surcharge against the Debtors' exempt property, including Debtors' retirement funds, to the extent necessary to satisfy the sums owed under paragraphs 1 through 3 above.

6. Said surcharge shall be in the amount necessary to net to the Estate and Trustee the payment of the sums owed under paragraphs 1 through 3 above and that any taxes, penalties or fees incurred by reason of the withdrawal or borrowing of said retirement accounts shall be born by the Debtors. The Estate and Trustee shall bear such tax liability as would have been incurred for receipt of the distributions from Debtors' ownership of the Limited Partnership in the Cheaters LLC TV Show as if such funds had been turned over to the Trustee without surcharge of the exempt assets.3

The Debtors failed to pay the Cheaters Funds to the Trustee by November 6, 2006.

The Debtors timely appeal the Surcharge Order, arguing that the funds at issue are exempt under Oklahoma law,

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that the bankruptcy court lacked authority to surcharge their exempt property, and that the bankruptcy court followed improper procedure in considering and issuing the Surcharge Order4


This Court has jurisdiction to hear timely appeals from final judgments, orders, and decrees of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the appeal heard by a district court.5 Neither party elected to have this appeal heard by the United States District Court for Western District of Oklahoma.

A decision is considered final if it "disposes of a particular adversary proceeding or discrete controversy pursued within the broader framework cast by the petition."6 In this case, the Surcharge Order ended the controversy of the Trustee's attempts to recover the Cheaters Funds. Thus, the Surcharge Order is a final order and the Court determines that jurisdiction over this appeal is appropriate.


A. Standard of Review

None of the factual determinations underlying the Surcharge Order are in dispute. The Court will review the bankruptcy court's authority to issue the Surcharge Order under de novo review,7 and will review the bankruptcy court's decision to apply that authority for an abuse of discretion.8

B. Propriety of the Turnover Order

At the outset, the Debtors argue that the bankruptcy court abused its discretion in ordering them to turn over the income received from Cheaters because they believe that those funds are exempt. The Trustee argues that the Debtors are barred by the doctrine of Law of the Case from arguing their right to assert an exemption in the Cheaters funds. We agree.

Under the doctrine of Law of the case, "`[a] legal decision made at one stage of litigation, unchallenged in a subsequent appeal when the opportunity to do so existed, becomes the law of the case for future stages of the same litigation, and the parties are deemed to have waived the right to challenge that decision at a later time.'"9 "The doctrine applies to issues previously decided, either explicitly or by necessary implication."10 A debtor's entitlement to an exemption is a question of law.11

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In the course of issuing the Turnover Order, the bankruptcy court implicitly determined that the Cheaters Funds were property of the estate and not exempt from the Trustee's administration in this case. The Debtors did not appeal the Turnover Order so the determination that the Cheaters funds were property of the estate became Law of the Case. The Debtors may not argue the merits of the legal determinations underlying the Turnover Order in this appeal.

C. Election of Remedies Defense and Procedure of the Bankruptcy Court

The Debtors further argue that the Trustee is estopped from seeking turnover of the Cheaters Funds they received post-petition under the Election of Remedies doctrine. They argue that by demanding that Cheaters make payments to the Trustee, he may not choose a different remedy to enforce the Turnover Order. They also argue that the Surcharge Motion was procedurally faulty because the Trustee failed to serve a summons on the Debtors and their counsel and they contend service of a summons is required under Bankruptcy Rule 9014.

These issues were not raised by the Debtors in objecting to the Trustee's Surcharge Motion,12 and they may not raise it for the first time on appeal.13

D. Bankruptcy Courts Have Authority to Surcharge Exemptions

The crux of this appeal is whether the bankruptcy court had authority to issue the Surcharge Order. We hold that it did.

Under 11 U.S.C. § 704(1)14, a Chapter 7 trustee is required to "collect and reduce to money the property of the estate...." Likewise, a Chapter 7 debtor is required to "cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under this title"15 and "surrender the trustee all property of the estate[.]"16 Failure of the debtor to honor these responsibilities may lead to judgments against the debtor requiring turnover or barring the debtor's Chapter 7 discharge.17

To enforce these continuing obligations, a majority of courts hold that a bankruptcy court is empowered under § 105(a) to authorize the trustee to "surcharge" the debtor's exempt assets to compensate the

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estate for property of the estate which the debtor refuses to surrender.18 We agree. Section 105(a) provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Section 704 and 521 of the Bankruptcy Code require the debtor to turn over property of the estate to a Chapter 7 trustee. In authorizing a Chapter 7 trustee to enforce these obligations against exempt property, a bankruptcy court does nothing more than issue an order "that is necessary or appropriate to carry out the provisions" of the Bankruptcy Code.19 To that end, courts issuing surcharge orders are not using Section 105(a) in the abstract to create new law, but are using it to augment those obligations found elsewhere in the Bankruptcy Code.20

The Court finds persuasive the analysis in In re Mazon, wherein the court explained that concealing and failing to turn over assets to a Chapter 7 trustee is tantamount to claiming an additional and unauthorized exemption "because the concealment and dissipation prevents administration of the assets by a trustee for the benefit of creditors."21 The Mazon court reasoned that a court's ability to issue surcharge orders is necessary to "prevent what would otherwise be a fraud on the court and on creditors caused by the debtor's failure to schedule and turn over estate assets."22

As the Ninth Circuit Court of Appeals stated in In re Latman, authorizing a surcharge of exempt property is not punitive in nature.23 Where a debtor deserves to be punished for failing to turn over property of the estate, a trustee should file an adversary proceeding to bar or revoke the debtor's discharge. The result of a judgment barring a debtor's discharge is that property of the estate is still subject to the trustee's administration and the debtor does not receive the benefit of a discharge.24 But even when a debtor's discharge


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