Woodson, In re
| Decision Date | 16 February 1988 |
| Docket Number | Nos. 86-1524,86-2775,s. 86-1524 |
| Citation | 839 F.2d 610 |
| Parties | , 18 Collier Bankr.Cas.2d 674, Bankr. L. Rep. P 72,197 In re Michael E. WOODSON, Debtor. Michael E. WOODSON, Debtor-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, Appellee. FIREMAN'S FUND INSURANCE COMPANY, Appellant, v. Michael E. WOODSON, Debtor-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Margaret Sheneman, Murphy, Weir & Butler, San Francisco, Cal., for appellant Fireman's Fund Ins. Co.
Sheridan Downey, II, Bell, Rosenberg & Hughes, Oakland, Cal., for debtor-appellee Michael E. Woodson.
Appeal from the United States District Court for the Northern District of California.
Before ANDERSON, NORRIS and KOZINSKI, Circuit Judges.
We consider procedural and substantive questions raised by a creditor's objection to a debtor's claim that the proceeds of his deceased wife's life insurance policy, received within 180 days after filing for bankruptcy, are exempt assets under federal and California law.
On August 24, 1984, Michael Woodson filed a petition for a chapter 11 reorganization. Three days later, Woodson's wife Patricia died of brain cancer, and on September More than a month later, on October 9, 1984, Woodson filed schedules with the bankruptcy court listing his assets and liabilities as of August 24, the petition date. On Schedule B-4, "Property Claimed Exempt," Woodson listed the life insurance policy and described its exempt value as "All benefits other than loan value (Unmatured at date of filing)." Excerpt of Record (ER) 1. Woodson cited Cal.Civ.Proc.Code Sec. 704.100(a) (West 1987) as the basis for his claim of exemption. 1 None of the papers filed October 9 contained an explanatory comment, footnote or supplement indicating that the policy insured the life of Mrs. Woodson or that the debtor had collected over $1 million in cash a month earlier. See Attachment to Schedule B-2, Clerk's Record (CR) 28, at 2; Schedule B-4, ER 1.
8, 1984, he collected $1,017,764.99 as the proceeds of an insurance policy he had taken out insuring her life.
About a week after Woodson filed his personal chapter 11 petition, his corporation, the Woodson Company, a licensed mortgage broker, followed suit. William B. Grover was appointed trustee to manage the company's estate; Woodson remained debtor in possession of his own estate. The company had two principal groups of creditors: the Official Unsecured Creditors Committee and a group of 118 secured lenders represented by attorney James A. Duckworth. Woodson also had two principal creditors: appellant Fireman's Fund Insurance Company, which owned over 90 percent of the claims against Woodson, and Grover, the Woodson Company's trustee.
On October 24, 1984, there was a meeting of Woodson's personal creditors. See 11 U.S.C. Sec. 341 (1982); Bankr.R. 2003(a). At the meeting Woodson acknowledged that his wife had died and that he had received the policy proceeds. Shortly thereafter, Grover and Duckworth filed objections on behalf of the company and its creditors to Woodson's claim to the insurance proceeds. They argued that Woodson could not exempt the proceeds and, because the company had paid the premiums on the policy, the proceeds should be held in a constructive trust for the company and its creditors.
On January 10, 1985, Woodson filed with the bankruptcy court a document titled "Debtor's Supplemental Schedule Respecting Receipt of Exempt Life Insurance Proceeds [Bankruptcy Rule 1007(h) ]." It disclosed Woodson's receipt of the life insurance proceeds and claimed that the entire amount was exempt under Cal.Civ.Proc.Code Sec. 704.100 (West 1987). The supplemental schedule was served only on Duckworth and David Chandler, an attorney for the company's trustee; it was not served on Fireman's Fund or any of Woodson's other creditors.
The bankruptcy court scheduled a hearing on the objections for January 16, but the hearing was continued to February 13. On February 11, Fireman's Fund prepared and signed a document titled "Memorandum of Law in Support of Objection to Claim of Exemption of Life Insurance Proceeds." Fireman's Fund mailed the document to the bankruptcy court in Eureka, California that day; it arrived the following day and the clerk stamped it as filed on February 12. On February 11, Fireman's Fund also hand-delivered copies of the document to Woodson, Grover, Duckworth and the deputy clerk in Santa Rosa, California, where the bankruptcy judge was scheduled to sit. Fireman's Fund argued, inter alia, that the policy proceeds were not exempt and therefore belonged to Woodson's estate, not to Woodson.
At the February 13 hearing, Grover and Duckworth proposed that Woodson give $100,000 of the policy proceeds to the company's estate and its creditors. Under this plan Woodson would keep the balance of the $1 million and his own chapter 11 estate would receive nothing. Because the lawyers lacked authorization from their clients, the compromise was not adopted and the hearing was continued until March 20.
Fireman's Fund subsequently rejected the compromise proposal. Nonetheless, on March 11, 1985, counsel for Woodson, Grover Fireman's Fund appealed to the district court (Williams, J.), which, on November 1, 1985, reversed the bankruptcy court, holding that the proceeds were property of Woodson's estate under 11 U.S.C. Sec. 541(a)(5)(C) (1982) because they were acquired within 180 days after the filing of the bankruptcy petition, and that Woodson was entitled only to the amount necessary to support him and his children under Cal.Civ.Proc.Code Sec. 704.100(c). 3 The district court also vacated the bankruptcy court's order approving the compromise. The court noted, however, that Fireman's Fund's objection may not have been timely and therefore remanded to the bankruptcy court for a determination of that issue. Woodson appealed the district court's substantive rulings but we stayed the appeal pending the district court's determination as to whether Fireman's Fund's objection was timely.
Duckworth and the unsecured creditors committee filed a motion seeking authorization for the compromise. The court granted the motion at the March 20 hearing and approved the compromise as binding in both the Woodson and Woodson Company cases the following day. On March 29, it rejected Fireman's Fund's claim that the insurance proceeds were not exempt and denied its objection to the compromise. 2
After briefing and a hearing, the bankruptcy court held that Fireman's Fund's objection was untimely. The district court (Lynch, J.) affirmed the bankruptcy court's decision and Fireman's Fund appealed. That appeal and Woodson's appeal on the merits have been consolidated before us.
Fireman's Fund argues that its objection to Woodson's claim of exemption was timely, having been effectively filed within 30 days after Woodson filed his claim of exemption to the $1 million. On the merits, it contends that federal law draws the life insurance proceeds into Woodson's estate and that California law permits an exemption only to the extent necessary to support Woodson and his children. In addition, it contends that the bankruptcy court abused its discretion in approving the compromise because it relied on an incorrect interpretation of the law and because the compromise allocated nothing to Woodson's personal creditors.
Woodson, for his part, urges us to affirm the decision that Fireman's Fund's objection was untimely. On the merits, he contends that the life insurance proceeds are totally exempt. In any event, he urges us to reverse the district court on the merits and uphold the compromise approved by the bankruptcy court.
The bankruptcy court, affirmed by the district court, ruled that Fireman's Fund's objection was untimely because it was filed on February 12, 1985, far more than 30 days after the October 24 creditors' meeting that, in the court's view, triggered the creditors' right to object to Woodson's claim of exemption. However, Bankruptcy Rule 4003(b) provides "[t]he trustee or any creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a) or the filing of any amendment to the list...." Bankr.R. 4003(b) (emphasis added). Quite clearly, the rule contemplates that objections will be raised within 30 days of the meeting of creditors only as to exemptions scheduled before that meeting. Where the asset is not scheduled until after the meeting, the creditors' right to object does not arise until the debtor amends the schedule and makes a formal claim of exemption.
Here, Woodson did not make his claim of exemption as to the $1 million before the October 24 creditors' meeting. As noted There can be no doubt that Woodson was required to list the $1 million in his schedules promptly. "Within ten days after the information comes to the debtor's knowledge ... the debtor ... shall file a supplemental schedule with respect to any property that the debtor acquires or becomes entitled to acquire within 180 days after the date of the filing of the petition ... (3) as a beneficiary of a life insurance policy or of a death benefit plan." Bankr.R. 1007(h)(3) (emphasis added). 4 While Woodson might well have been excused from acting within the prescribed 10 days because he had not yet filed his original schedules, he had no justification for failing to disclose receipt of the $1 million in his schedules when he did file them. The leading bankruptcy treatise notes that "[p]roperty acquired by the debtor after the filing of the petition but prior to the filing of the schedules should be included if within the provisions of section 541 []." 3 Collier on Bankruptcy p 521.06, at 521-22 (15th ed. 1987) (Collier ). We join in this...
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