In re Sharkey
| Decision Date | 16 February 2017 |
| Docket Number | Case No. 16–44445 |
| Parties | IN RE: Steven G. SHARKEY, and Sandra E. Sharkey, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Sonya N. Goll, Stevenson & Bullock, P.L.C., Southfield, Michigan, Attorney for Creditor, Stevenson & Bullock, P.L.C.
David H. Lewiston, Adam L. Wiener, Law Office of David H. Lewiston, Bingham Farms, Michigan, Attorneys for Debtors
Marilyn R. Somers-Kantzer, Kimberly Shorter-Siebert, Attorneys for Tammy L. Terry, Chapter 13 Trustee, Detroit, Michigan
This case presents a dispute over the efforts of Debtor Steven G. Sharkey ("Debtor") to exempt his interest in two annuity contracts. The Court held a hearing on December 15, 2016, regarding the objection by the creditor Stevenson & Bullock, P.L.C. (the "Creditor") to Debtor's fifth amended claim of exemptions (Docket # 127, the "Objection to Exemptions"), and the Creditor's related request for sanctions against Debtor's attorneys under 28 U.S.C. § 1927. The Chapter 13 Trustee joined in the Objection to Exemptions, by filing a concurrence.1
For the reasons stated in this opinion, the Court will enter an order sustaining the Creditor's Objection to Exemptions, but denying the Creditor's request for sanctions.
This Court has subject matter jurisdiction over this bankruptcy case and this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This contested matter is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(B), and 157(b)(2)(O). This matter also is "core" because it is "created or determined by statutory provision[s] of title 11," namely, 11 U.S.C. §§ 522(b)(3) and 522(b)(4). See generally Allard v. Coenen (In re Trans–Industries, Inc. ), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009).
This bankruptcy case began as a Chapter 7 case, when Debtor and his spouse, Sandra Sharkey, filed their voluntary Chapter 7 petition on March 25, 2016. Michael Stevenson was appointed the Chapter 7 Trustee, and his law firm, Stevenson & Bullock, P.L.C. (the Creditor) represented the Trustee. On Debtors' motion, the case was later converted to Chapter 13, by an order entered on June 22, 2016.2 The Creditor has an allowed Chapter 7 administrative expense, for its work in representing the Chapter 7 Trustee before the case was converted to Chapter 13. In an order entered on August 25, 2016, the Court granted the Creditor's application for allowance of administrative fees and expenses, in the reduced amount of $6,450.00 in fees plus expenses of $30.34, for a total allowed administrative expense of $6,480.34.3
There has been substantial litigation, in both the Chapter 7 and the Chapter 13 phases of this case, over Debtor's efforts to exempt his interest in two annuities. The annuities at issue will be referred to as the "Hartford Annuity" and the "Nationwide Annuity" and these are discussed in more detail below. During the Chapter 7 phase of this case, the Chapter 7 Trustee objected to Debtor's initial claim of exemptions, and his first amended claim of exemptions.4 Then Debtors filed their motion to convert the Chapter 7 case to Chapter 13, and the Trustee objected to that motion.5 Debtors then filed their second amended claim of exemptions.6
The Court held a hearing on June 15, 2016, and scheduled the Trustee's objection to exemptions for a further, non-evidentiary hearing, and granted leave for the Trustee and Debtor to conduct discovery.7
Before the further hearing was held, however, the Court held a hearing on Debtors' motion to convert to Chapter 13, on June 22, 2016. At the conclusion of that hearing, the Court granted Debtors' motion to convert, with certain conditions, and then entered an order converting the case.8 The conversion of this case terminated the services of the Chapter 7 Trustee, and mooted the Chapter 7 Trustee's objection to exemptions.
On July 1, 2016, Debtors filed their third amended claim of exemptions and a proposed Chapter 13 Plan.9 The Creditor then filed its application for allowance of Chapter 7 administrative expenses, on July 6, 2016. After Debtors filed an objection to that application, the Court held a hearing on August 25, 2016, and granted the application in a reduced amount, as noted above.10
Meanwhile, on July 25, 2016, the Creditor filed its own objection to Debtor's third amended claim of exemptions, and an objection to confirmation of Debtors' proposed Chapter 13 Plan.11 After Debtor did not timely respond to the Creditor's objection to exemptions, the Court entered an order on August 15, 2016, sustaining the objection.12 That order was later vacated, however, after Debtor successfully moved for relief from and reconsideration of the August 15 Order.13 In granting that relief, the Court found excusable neglect on the part of Debtor's counsel in failing to timely respond to the objection to exemptions. The Court also ruled that the Creditor's objection to exemption had been timely filed, and the Court scheduled that objection for a hearing. The Court held the hearing on November 3, 2016, and entered an order the next day.14 The Court disallowed Debtor's then-most recent amended claims of exemption in the Hartford Annuity and the Nationwide Annuity, in their entirety, but without prejudice to the right of Debtors to file yet another set of amended exemption claims.
On November 8, 2016 Debtors filed their fourth amended claim of exemptions, and then refiled them on November 10, 2016 with a corrected cover sheet.15 The Creditor then timely objected to the latest amended claim of exemptions, on November 22, 2016.16 That Objection to Exemptions is now before the Court, as is a request for sanctions that the Creditor included in its Objection to Exemptions. After the Chapter 13 Trustee concurred in the Creditor's Objection to Exemptions, and Debtor timely responded, the Court held a hearing on December 15, 2016. The matter is now ready for decision.
In their original claims of exemption (Schedules C) and in the first three amended claims of exemption, Debtors claimed exemptions under the federal exemption provisions of § 522, namely, 11 U.S.C. §§ 522(b)(2) and 522(d). During the November 3, 2016 hearing, Debtor's counsel stated that Debtors wanted to switch to claiming exemptions under the state law exemptions, namely, under 11 U.S.C. § 522(b)(3) and the Michigan exemption statute applicable to bankruptcy debtors, Mich. Comp. Laws § 600.5451. After the Court allowed this, Debtors filed their fourth and fifth amended claims of exemption, each of which claimed exemptions under the state law exemption provisions. As discussed below, Debtors did this after their attorneys conceded, during the November 3, 2016 hearing, that Debtor had no valid claim of exemption for the Hartford Annuity or the Nationwide Annuity under the federal exemptions.
In Debtor's most recent and currently-operative amended Schedules C, Debtor Steven Sharkey claims an exemption for the entire value of the Hartford Annuity ($78,897.00) and for the entire value of the Nationwide Annuity ($17,778.00), each under the following statutory provisions:
These are discussed in part IV.C of this opinion, below.
Initially, the Court reiterates the following general principles regarding exemptions, which the Court stated in a prior case, In re Kizer , 539 B.R. 316, 319 (Bankr. E.D. Mich. 2015) :
Debtors argue that the Creditor lacks standing to object to Steven Sharkey's claims of exemption in the Hartford Annuity and the Nationwide Annuity. Debtors note that the Creditor's allowed claim is entirely an administrative claim, entitled to priority under Bankruptcy Code § 507. So Debtors cannot confirm a Chapter 13 plan unless the plan at least provides for the full payment, in deferred cash payments, of the Creditor's claim (unless the Creditor agrees to a different treatment). See 11 U.S.C. §§ 1322(a)(2), 1325(a)(1), 507(a)(2), 503(b). And Debtors' Chapter 13 plan, which has not yet been confirmed, provides that the Creditor's claim will be paid in full.18 Debtors argue that because the Creditor's claim must and will be paid in full under their Chapter 13 plan, it makes no difference financially to the Creditor whether the annuities at issue are deemed exempt or not—in either case, the Creditor's claim will be paid in full in this Chapter 13 case.
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