Straffi v. Morgan (In re Morgan, Nancy J.)

• Decision Date: 01 February 2017
• Docket Number: Case No.: 14-36112 (KCF),Civil Action No. 16-614 (BRM)
• Parties: In re: MORGAN, NANCY J., Debtor. DANIEL E. STRAFFI, Chapter 7 Trustee Appellant, v. NANCY J. MORGAN, Appellee.
• Court: U.S. District Court — District of New Jersey

In re: MORGAN, NANCY J., Debtor.

DANIEL E. STRAFFI, Chapter 7 Trustee Appellant,
v.
NANCY J. MORGAN, Appellee.

Case No.: 14-36112 (KCF)
Civil Action No. 16-614 (BRM)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

February 1, 2017

NOT FOR PUBLICATION

Hon. Kathryn C. Ferguson, U.S.B.J.

Hon. Brian R. Martinotti, U.S.D.J.

MARTINOTTI, DISTRICT JUDGE

Appellant Daniel E. Straffi ("Trustee" or "Appellant"), Chapter 7 Trustee for the within debtor, Nancy J. Morgan ("Debtor" or "Appellee"), appeals from the Order Denying Objection to Exemptions entered by the Honorable Kathryn C. Ferguson, U.S.B.J., on January 20, 2016. Pursuant to Fed. R. Civ. P. 78, there was no oral argument. For the reasons set forth below, the Trustee's appeal is DENIED and the Order of the Bankruptcy Court is AFFIRMED.

I. BACKGROUND

On December 31, 2014, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. (Bankr. Dkt. No. 1.) In Schedule "A" of her petition, the Debtor listed a residence owned by her at 11 Albert Street, Howell, New Jersey (the "Howell Property") with a value of $125,000.00. (Id. at Schedule A.) With respect to the Howell Property, the Debtor claimed

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a residential real estate exemption of $5,601.43 (id. at Schedule C) and listed a secured claim, a mortgage to PHH Mortgage Corp. ("PHH"), in the amount of $106.898.52. (Id. at Schedule D.)

On February 24, 2015, the Trustee applied to retain himself as attorney for the Trustee and Bederson, LLP as accountants to the Trustee. (Bankr. Dkt. Nos. 6-7.) The Debtor opposed the Trustee's application for appointment. (Bankr. Dkt. No. 8.) On March 6, 2015, the Bankruptcy Court granted both applications. (Bankr. Dkt. Nos. 9 and 10.)

On June 22, 2015, PHH filed a Motion for Relief from Stay as to the Howell Property. (Bankr. Dkt. No. 20.) Before PHH's stay motion could be heard, on July 8, 2015, the Debtor filed a motion to convert her case to Chapter 13. (Bankr. Dkt. No. 21.) In support of that motion, the Debtor certified "[t]he Chapter 7 Trustee has asserted the value of my residence is in excess of the value listed in Schedule A of my petition and has threatened to list the property for $162,500.00 even though I had provided him with an appraisal certifying that the fair market value is actually $125,000.00." (Bankr. Dkt. No. 21-1.) The Debtor also submitted a proposed form of Order following the "Recommended Local Form". (Bankr. Dkt. No. 21-2.) The Trustee did not oppose the Debtor's conversion motion and, on August 12, 2015, the Bankruptcy Court entered an Order converting the Debtor's case to Chapter 13 (the "Conversion Order"). (Bankr. Dkt. No. 23.) The Conversion Order entered by the Bankruptcy Court was the proposed form of Order submitted by the Debtor, and provides that "within 15 days of the date of this Order the [D]ebtor shall file amendments to previously filed schedules and statements as necessary." (Id. at 2.) The Conversion Order further provides "that within 15 days of the date of this Order the [D]ebtor shall file a Chapter 13 Plan and Motions" and "if the [D]ebtor fails to file the Chapter 13 Plan and Motions within 15 days of the date of this Order, the case shall be converted to [C]hapter 7 by the Court without further notice." (Id. at 3.)

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The Debtor did not file a Chapter 13 Plan and Motions, nor did she amend her schedules, within 15 days of the Conversion Order. (Trustee's Mem. (ECF No. 3) at 5; Debtor's Mem. (ECF No. 4) at 4.) As a result, on August 13, 2015, the Bankruptcy Court reconverted the Debtor's case to Chapter 7 (Bankr. Dkt. No. 28) and the Trustee was reappointed. (Bankr. Dkt. No. 29.)

On September 22, 2015, the Trustee applied to retain ERA Design for Living as Realtor to enable the Trustee to sell the Howell Property. (Bankr. Dkt. No. 34.) The Bankruptcy Court granted the Trustee's application, over the Debtor's objection, on September 30, 2015. (Bankr. Dkt. No. 36.)

After the case was reconverted to Chapter 7, on October 6, 2015, the Trustee filed opposition to PHH's Motion for Stay Relief. (Bankr. Dkt. No. 39.) The Trustee argued the value of the Howell Property was $165,000.00, not the $125,000.00 claimed by the Debtor, and there was excess equity in the Howell Property of $38,500.00. (Id.) Ultimately, PHH and the Trustee agreed to resolve PHH's motion by entering into a Consent Order.

On October 14, 2015, before the Consent Order was entered, the Debtor filed an amended Schedule "C" of her petition to increase her claimed exemption for the Howell Property from $5,601.48 to $23,916.41. (Bankr. Dkt. No. 41.) The Debtor also added another exemption under §522(d)(5) in the amount of $941.41. (Id.)

On November 9, 2015, the Trustee filed a motion objecting to the Debtor's amended exemptions. (Bankr. Dkt. No. 46.) Without filing a supporting brief, the Trustee argued the Debtor could not amend her schedules to increase her exemption in the Howell Property, and should be precluded from doing so for failing to abide by the time limits set forth in the Conversion Order. (Id.)

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On December 15, 2015, the Debtor filed opposition to the Trustee's motion objecting to the Debtor's amended exemptions. (Bankr Dkt. No. 53.) In her opposition, the Debtor certified that she originally "claimed an exemption of $5,602.00 in [the Howell Property]. This was the amount needed to cover potential equity. I valued my property at $125,000.00, estimated costs of sale at 10% leaving $112,500.00 less a mortgage of $106,898.00 leaving $5,601.00." (Bankr. Dkt. No. 53-1.) The Debtor explained that, "[b]ecause the Trustee believes my home is worth more than $125,000.00, I amended my exemptions to claim the maximum available of $23,916.00," and claimed to "have the right to amend exemptions at any time." (Id.) Relying on Law v. Siegel, 571 U.S. ___, 134 S. Ct. 1188 (2014), the Debtor also argued in her brief she was able to amend her exemption at any time, and the Bankruptcy Court's Conversion Order did not prevent subsequent amendments to exemptions, notwithstanding her failure to comply with the deadlines set forth therein. (Id.)

At the hearing on the motion, the Bankruptcy Court agreed with the Debtor and issued a ruling from the bench. (Bankr. Dkt. No. 55.) The Bankruptcy Court denied the Trustee's motion and held the Trustee's reading of the Conversion Order was not rationale. (Bankr. Dkt. No. 57.) Further, the Bankruptcy Court agreed with the Debtor that, even if the Debtor did not comply with the Conversion Order, the Debtor could still amend her schedules any time under Fed. Bankr. R. 1009(a). (Id.) This appeal followed.

II. APPELLATE JURISDICTION

Pursuant to Title 28 of the United States Code, Section 158(a), "[t]he district courts of the United States shall have jurisdiction to hear appeals" from "final judgments, orders, and decrees" of a bankruptcy court. 28 U.S.C. § 158(a)(1). The Bankruptcy Court's Order Denying Objection

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to Exemptions is a final order for purposes of an appeal. Kollar v. Miller, 176 F.3d 175 (3d Cir. 1999); Preblich v. Battley, 181 F.3d 1048, 1056 (9th Cir. 1999).

III. STANDARD OF REVIEW

"The proper standard of review to be applied by a district court when reviewing a ruling of a bankruptcy court is determined by the nature of the issues presented on appeal." In re Beers, 2009 WL 4282270, *3 (D.N.J. Nov. 30, 2009) (quoting Baron & Budd, P.C. v. Unsecured Asbestos Claimants Committee, 321 B.R. 147, 157 (D.N.J. 2005)). A district court reviews "the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof." In re United Healthcare System, Inc., 396 F.3d 247, 249 (3d Cir. 2005) (quoting In re Trans World Airlines, Inc., 145 F.3d 124, 130-31 (3d Cir. 1998)). Here, the Trustee seeks review of the Bankruptcy Court's legal determinations and, therefore, a plenary standard of review applies. In re Handel, 570 F.3d 140, 141 (3d Cir. 2009); In re Logiudice, 2013 WL 6528810, at *2 (D.N.J. Dec. 12, 2013).

IV. DECISION

The Trustee raises five issues on appeal: (1) whether the Bankruptcy Court erred in allowing the Debtor to increase exemptions for the Debtor's residence; (2) whether the Bankruptcy Court erred in applying the terms of its Conversion Order in allowing the Debtor to amend the exemption in her residence; (3) whether the Bankruptcy Court erred in applying Rule 1009(a) of the Federal Rules of Bankruptcy by allowing the Debtor to amend Schedule "C" of her petition; (4) whether the Bankruptcy Court...