Mullen v. Hamlin (In re Hamlin)

• Decision Date: 21 February 2012
• Docket Number: BAP No. AZ–11–1083–KiWiJu.,Bankruptcy No. 10–18812–GBN.
• Citation: 465 B.R. 863,12 Cal. Daily Op. Serv. 3166,2012 Daily Journal D.A.R. 2353
• Parties: In re Travis M. HAMLIN and Brittany B. Hamlin, Debtors.Brian J. Mullen, Chapter 7 Trustee, Appellant, v. Travis M. Hamlin; Brittany B. Hamlin, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

12 Cal. Daily Op. Serv. 3166

2012 Daily Journal D.A.R. 2353

465 B.R. 863

In re Travis M. HAMLIN and Brittany B. Hamlin, Debtors.Brian J. Mullen, Chapter 7 Trustee, Appellant,

v.Travis M. Hamlin; Brittany B. Hamlin, Appellees.

BAP No. AZ–11–1083–KiWiJu.

Bankruptcy No. 10–18812–GBN.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on Jan. 19, 2012.Decided Feb. 21, 2012.

Terry A. Dake, Terry A. Dake, Ltd., Phoenix, AZ, for Brian J. Mullen, Trustee.

Richard W. Hundley, Berens Kozub Kloberdanz & Blonstein, PLC, Scottsdale, AZ, for Travis and Brittany Hamlin.

Before: KIRSCHER, WILLIAMS,¹ and JURY, Bankruptcy Judges.

OPINION

KIRSCHER, Bankruptcy Judge.

Appellant, chapter 7 ² trustee Brian Mullen (“Trustee”), appeals a bankruptcy court order allowing debtors' claimed exemption under § 522(b)(3)(C) for an individual retirement account (“IRA”) Brittany Hamlin (“Ms. Hamlin”) (collectively “Debtors”), inherited from her grandmother prepetition. In this issue of first impression before a court of appeals within the Ninth Circuit, we hold that a debtor can exempt funds in an IRA inherited from a non-spouse under § 522(b)(3)(C), and we AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

In their Schedule C, Debtors claimed two IRA accounts exempt under Ariz. Rev. Stat. Ann.. (“A.R.S.”) § 33–1126. The IRA at issue in this appeal was funded by Ms. Hamlin's grandmother. Trustee does not dispute that the grandmother's IRA was a properly established retirement account exempt from taxation under IRC § 408. Shortly after her death in 2004, the grandmother's IRA funds were transferred via a trustee-to-trustee transfer by RBC Wealth Management, as custodian, to an inherited IRA account for the benefit of Ms. Hamlin (the “Inherited IRA”). The Inherited IRA was valued at approximately $31,878.32 at the time of petition.

Trustee timely objected to Debtors' claimed exemption, contending that inherited IRAs, unlike traditional IRAs funded by the debtor, are not exempt. In their response, Debtors contended that Trustee failed to cite any Arizona authority holding that inherited IRA's are not exempt, but argued that the Inherited IRA would be exempt under the broad language of A.R.S. § 33–1126(B).³

The bankruptcy court held an initial hearing on the matter on September 28, 2010. It determined that the Inherited IRA was likely exempt under § 522(b)(3)(C),⁴ but it requested additional briefing from the parties on the matter.

In their supplemental brief, Debtors contended that the Inherited IRA was exempt under § 522(b)(3)(C) and In re Tabor, 433 B.R. 469 (Bankr.M.D.Pa.2010), aff'd, 10–CV–1580 (M.D.Pa. Dec. 2, 2010). Debtors argued that Tabor correctly observed Congress' intent to increase protections afforded debtors for retirement funds with the addition of §§ 522(b)(3)(C), 522(b)(4)(C), and 522(d)(12) to the Code in 2005. Now, debtors in opt-out states like Arizona could apply federal exemptions to IRAs, which also included “trustee-to-trustee” accounts such as inherited IRAs.

Trustee argued that because Debtors had claimed the Inherited IRA exempt under A.R.S. § 33–1126(B), that was the applicable statute here, not § 522(b)(3)(C). Alternatively, if § 522(b)(3)(C) did apply, Trustee contended that In re Tabor, which essentially adopted the reasoning of the Eighth Circuit BAP in In re Nessa, 426 B.R. 312 (8th Cir. BAP 2010), got it wrong. Trustee argued that Congress did not intend to extend the umbrella of protection for IRA assets beyond the retirees who earned those funds and encouraged the bankruptcy court to adopt the holding of In re Chilton, 426 B.R. 612, 617 (Bankr.E.D.Tex.2010), rev'd, 444 B.R. 548, 552 (E.D.Tex.2011), which concluded that funds in an inherited IRA are not exempt under § 522(d)(12) because they are not “retirement funds” intended for the debtor's retirement (hereinafter “ Chilton I ”). Trustee contended that the reasoning in Chilton I extended to inherited IRAs under § 522(b)(3)(C) because the language in the two statutes is identical.⁵

A second hearing on the matter was held on November 2, 2010. The bankruptcy court rejected the reasoning in Chilton I, and agreed with the holdings of In re Nessa and In re Tabor that an inherited IRA from a non-spouse is exempt under § 522(b)(3)(C) and § 522(b)(4)(C).⁶ Accordingly, Trustee's objection to Debtors' claimed exemption for the Inherited IRA was overruled. However, because the question of whether Ms. Hamlin had complied with the IRC to maintain the account's tax exempt status remained unanswered, which could affect whether it was an exemptible asset, the court was willing to hear further motions on the issue if needed. The court ordered Debtors to amend their Schedule C to reflect the claimed exemption for the Inherited IRA under § 522(b)(3)(C). No order was entered, but a minute entry from November 9, 2010 (“November 9 Minute Entry”), states:

IT IS ORDERED that the objection is overruled. The court will hear a motion to dismiss if needed. An amendment to Schedule C is required. No further hearings will be set unless requested.

Debtors filed their amended Schedule C on November 3, 2010. Thirty days later, Trustee filed an objection to the amended Schedule C. Trustee, observing that no final order had yet been signed, reserved his objection to Debtors' exemption of the Inherited IRA pending information on whether appropriate distributions had been made in order to maintain its tax exempt status. Trustee requested an order denying Debtors' amended exemption for the Inherited IRA.

The following day, Trustee filed a first amended objection to the amended Schedule C. In addition to his prior objection, Trustee argued that because Debtors had initially sought to exempt the Inherited IRA under state law and litigated the issue, they should not be allowed to now exempt it under federal law. Alternatively, Trustee contended that allowance of the amendment be conditioned upon reimbursement to the estate for expenses incurred in litigating the first exemption asserted.

In his second amended objection to Debtors' amended Schedule C filed a few weeks later, Trustee withdrew his first objection that Ms. Hamlin had not maintained the account's tax exempt status based on documentation establishing that she had taken the required distributions. However, Trustee still contended that Debtors were not allowed to seek an exemption under federal law after their exemption under state law failed. Debtors rejected Trustee's arguments.

A third hearing on the matter was held on February 4, 2011. The bankruptcy court rejected Trustee's argument that Debtors were not allowed to amend their Schedule C to exempt the Inherited IRA under § 522(b)(3)(C), especially when the court instructed them to do so. Nonetheless, the court was willing to consider Trustee's arguments about Debtors' eligibility under § 522(b)(3)(C). Trustee's counsel responded that he had exhausted the § 522 issue at the previous hearing, so he would not argue it again. After hearing arguments from the parties on the issue of reimbursing the estate, the bankruptcy court overruled Trustee's second amended objection and determined that each party would bear its own costs. The court accepted Trustee's offer to lodge a proposed final order on the matter.

On February 9, 2011, the bankruptcy court entered an order overruling Trustee's second amended objection to Debtors' amended Schedule C, and allowing their claimed exemption for the Inherited IRA under § 522(b)(3)(C) (the “February 9 Order”). Trustee timely appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 157(b)(2)(B) and 1334. We now address our jurisdiction over this matter.

Debtors contend that Trustee's appeal of whether the Inherited IRA is exempt under § 522(b)(3)(C) is untimely. Specifically, Debtors contend that the bankruptcy court's ruling on this issue was final when it entered the November 9 Minute Entry. Debtors argue that the bankruptcy court further showed its intent that its ruling on the issue was final with statements it made at the hearing on November 2, 2010. According to Debtors, the only issues remaining to be decided after the November 9 Minute Entry were the two issues raised in Trustee's subsequent objections to Debtors' amended Schedule C—whether Ms. Hamlin took the required distributions to maintain the IRA's tax exempt status, and whether Trustee was entitled to attorney's fees and costs as a condition for allowing Debtors to exempt the Inherited IRA under § 522(b)(3)(C). Trustee withdrew his objection on the first issue, and the bankruptcy court overruled his request for fees and costs in the February 9 Order. Therefore, contend Debtors, Trustee's appeal of the bankruptcy court's ruling that the Inherited IRA was exempt under § 522(b)(3)(C), which is contained in the November 9 Minute Entry, is untimely. Debtors argue that all Trustee has timely appealed is the bankruptcy court's February 9 Order denying his request for attorney's fees and costs.

We conclude that the November 9 Minute Entry was not a final and appealable order. A minute entry may constitute a dispositive order for notice of appeal purposes if it: (1) states that it is an order; (2) is mailed to counsel; (3) is signed by the clerk who prepared it; and (4) is entered on the docket sheet. Kuan v. Lund (In re Lund), 202 B.R. 127, 130 (9th Cir. BAP 1996). Here, the November 9 Minute Entry was entered on the docket sheet and, under the Local Rules of Bankruptcy Procedure for the District of Arizona, was mailed to counsel. See Local Rule 5005–2(k) (electronic service by the clerk “constitutes service of the pleading, petition, or other document.”). Furthermore, under the Local Rules, an electronically filed document by the court need not contain the judge's or clerk's signature to be official and binding. See Local Rule 5005–2(j) (“Any order or other court-issued document filed electronically without the original...