In re Talmo, Bankruptcy No. 93-32745-BKC-RAM.
| Decision Date | 17 August 1995 |
| Docket Number | Bankruptcy No. 93-32745-BKC-RAM. |
| Parties | In re Roy W. TALMO, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida |
Amber Donner, U.S. Trustee, Miami, FL.
Arthur Halsey Rice, Arthur Halsey Rice & Associates, Miami, FL, Scott Callahan, Frith & Stump, P.A., Orlando, FL, for The Reliant Group.
Robert Gilbert, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., West Palm Beach, FL, for F.D.I.C.
Paul McMahon, Schulte, Blum, et al., Miami, FL, for Citibank & Blackhawk.
David Profilet, Profilet & Associates, Miami, FL, for Soneet Kapila, Trustee for Estate of Data Lease Financial Corp.
Robert C. Furr, Furr & Cohen, Boca Raton, FL, for Roy W. Talmo.
This Chapter 11 case was converted to Chapter 7 in November 1994 after several unsuccessful attempts by the debtor to reorganize. This opinion considers whether the debtor should now be allowed to amend his schedules to claim property as exempt which he previously scheduled as non-exempt and included as part of his proposed plans. Despite the generally permissive rules allowing amendments during a case, the facts and circumstances in this case require the Court to disallow the amendment.
Roy W. Talmo ("Talmo" or "Debtor") filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on August 13, 1993 (the "Petition Date"). The case subsequently was converted to Chapter 7, and on February 24, 1995, Talmo filed an amendment to his schedules in order to claim additional real and personal property as exempt. Most significantly, he amended his homestead exemption claim from 30 acres to approximately 152 acres. On March 14, 1995, the Trustee, Kenneth Welt, filed "Trustee's Objections to Debtor's Amended Claim of Exemptions," and on March 24, 1995 filed "Trustee's Supplemental Objection to Debtor's Amended Claim of Exemptions." Additional objections were filed by several other parties, specifically: "Objections of FDIC as Receiver to Exemptions of Debtor" filed March 20, 1995; "Objections of Citibank and Blackhawk to Exemption of Debtor" filed March 24, 1995; "Objections of the Reliant Group to Exemptions Claimed by Debtor" filed March 23, 1995; and "Limited Joinder by Soneet R. Kapila, Trustee for the Estate of Data Lease Financial Corporation in Objections of FDIC as Receiver to Exemptions of Debtor" filed March 22, 1995.
On May 9, 1995 the Court commenced a hearing on all the objections. Further hearing was conducted May 11 and 12, 1995. For the reasons that follow, based upon the Court's review of the record, including the testimony and exhibits offered at trial, the arguments of counsel, and consideration of applicable case law, the objections are sustained and the Debtor's amended claim of exemption is stricken.
Talmo is a sophisticated investor with an extensive background in commercial transactions, particularly banking. In 1963, Talmo purchased and became a shareholder of Commerce National Bank in Lake Worth, Florida ("Commerce National"). In 1966, Talmo acquired and became a shareholder and chief executive of the First American Bank in North Palm Beach, Florida ("First American"). In 1969 Talmo formed and ultimately became the sole shareholder of Funding, Inc., a corporation which in turn held a majority stake in Data Lease Financial Corporation along with other holdings. Data Lease Financial Corporation was a single bank holding company which by 1978 held 80% of the stock of First American and Commerce National. In 1980, First American merged with Commerce National, with First American being the successor. Talmo remained chief executive of First American until 1989. First American failed in 1989 and eventually was placed in receivership by the FDIC.
On December 23, 1980, Talmo acquired title to property located in Boynton Beach, Florida consisting of approximately 300 acres of farm land (the "Property"). In 1986, Talmo paid off the mortgage on 30 acres of the Property (the "30-Acre Sub-Parcel") and took out a first mortgage with Community Federal Savings and Loan ("Community Savings") on the 30 acres to fund the construction of a home which he built on the Property. In late 1988 Talmo moved into the home, and in early 1989 he filed a homestead tax exemption application with the Tax Assessor of Palm Beach County on the west 160 acres of the Property (the "West 160 Parcel"), which included the 30-Acre Sub-Parcel on which the home was built. The County granted the homestead tax exemption and the tax exemption has been renewed from year to year to the present date. Talmo leased the east 140 acres (the "East 140 Parcel") to various farmers until the East 140 Parcel was sold by the Trustee in this case in March of this year.1
The West 160 Parcel, including the 30-Acre Sub-Parcel containing Talmo's home, was leased on a verbal lease to two corporations owned by Talmo, RWT Company, Inc. and RWT Nursery, Inc. (collectively, the "RWT Corporations"). With the exception of several acres surrounding the home, the entire West 160 Parcel contains trees planted for the RWT Corporations or nursery buildings and plants belonging to the RWT Corporations. Talmo ran the RWT Corporations prior to and during his Chapter 11 case.
As of the Petition Date, the 30-Acre Sub-Parcel was encumbered by the Community Savings mortgage. In addition, a tax certificate for the unpaid 1991 taxes held by Palm Beach County, Florida, in the amount of $4,691.14 (the "1991 Tax Certificate") encumbered the West 160 Parcel, including the 30-Acre Sub-Parcel. Farm Credit of South Florida ("Farm Credit") presently holds a first mortgage on approximately 118 acres of the West 160 Parcel (the "118-Acre Sub-Parcel") as successor or assignee of certain mortgages Talmo executed in 1985 and 1986 in favor of the Federal Land Bank of Columbia, S.C. (the "Farm Credit Mortgage"). The Farm Credit Mortgage is secured by all of the West 160 Parcel except the 30-Acre Sub-Parcel which secures the Community Savings mortgage, and a 3.89 acre strip which apparently is unencumbered by either the Farm Credit Mortgage or Community Savings mortgage.
On February 28, 1988, Talmo executed a mortgage in favor of First American in the original principal amount of $1.7 million, secured by both the 118-Acre Sub-Parcel and the East 140 Parcel. This mortgage (the "FDIC Mortgage") is now held by the Federal Deposit Insurance Corporation ("FDIC"), as receiver for First American. The FDIC Mortgage is second in priority to the Farm Credit Mortgage on the 118-Acre Sub-Parcel, and is first in priority on the East 140 Parcel. On May 21, 1993, the FDIC obtained a Summary Final Judgment of Foreclosure on its mortgage, in the United States District Court for the Southern District of Florida. The foreclosure sale was scheduled to take place on August 17, 1993, but was stayed by the filing of the petition.
Thus, as of the Petition Date, the 118-Acre Sub-Parcel was encumbered by the following liens and encumbrances relevant to this opinion, in order of priority:2
As of the Petition Date, the East 140 Parcel was encumbered by the following liens and encumbrances, in order of priority:
On September 9, 1993, Talmo filed his bankruptcy schedules with the Court. In the "Schedule A — Real Property" Talmo listed the 30-Acre Sub-Parcel (described as "Residence on 30 acres of land"); the 118-Acre Sub-Parcel (described as "118.62 Acre Farm"); and the East 140 Parcel (described as "145.5 Acre Farm"). The current market values were stated to be $800,000, $1.1 million (approximately $9,300 per acre), and $1.3 million (approximately $9,000 per acre), respectively. Talmo's "Schedule C — Property Claimed as Exempt" claimed only the 30-Acre Sub-Parcel as exempt under the homestead exemption provided by Article X, Section 4 of the Florida Constitution. In the initial schedules, Talmo did not claim the 118-Acre Sub-Parcel as exempt.
The evidence at trial established that Talmo considered but chose not to claim the entire West 160 Parcel, including the 118-Acre Sub-Parcel, as exempt. Prior to filing his bankruptcy petition, Talmo had asserted in negotiations with creditors that he was entitled to claim the 118-Acre Sub-Parcel as homestead, and had listed the 118-Acre Sub-Parcel as "Homestead" in a 1992 financial statement. (Trustee's Exhibit 24).3 In addition, on July 26, 1993, Talmo's lawyer, Lawrence Schantz ("Schantz"), of the law firm Schantz, Schatzman & Aaronson (the "Schantz Firm") sent a letter to James R. Downing, Jr., a credit specialist with the FDIC, which stated that the homestead portion of the Property totalled 160 acres. (TE-27).
When Talmo decided to file a bankruptcy petition, he consulted with the Schantz Firm regarding the advantages and disadvantages of claiming the 118-Acre Sub-Parcel as part of his homestead in his bankruptcy schedules. On August 31, 1993, Talmo sent a letter to the Schantz Firm seeking its advice on the issue. (TE-28). In the letter, Talmo expressed concern that, if he did not claim the 118-Acre Sub-Parcel as exempt, value would be available to his unsecured creditors. Talmo states, in relevant part:
Taking your number of $9,500 per acre would produce an approximate value of $2.5 million and if you added $1 million as to value of trees in the ground, you are going to end up with a value...
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