nine douglas elliman vs michael james baker and all argument not to exceed fifteen minutes per side mr morris you may proceed for the appellant may it please the court thomas morris on behalf of the appellant douglas the bankruptcy trustee your honour's fourteen months ago the supreme court in law versus eagle ruled in a california bankruptcy case that the trustee could not surcharge exempt property in order to pay expenses of administration in that bankruptcy case section five twenty two k of the bankruptcy code in fact says that property exempted by the debtor is generally not liable for administrative expenses the supreme court decision was announced between the time that the objection to the exemptions in this case was filed and the hearing on the objection that was held by the bankruptcy court so the hearing eagle was a central topic of discussion the trustee distinguish the case at that time on the basis that in law versus eagle the claim of exemption taken by the debtor had not been amended the debtor wasn't seeking to amend the claim of exemption so bankruptcy roll one thousand and nine which governs a debtors amendment of schedules including a schedule in which an exemption is claimed was not a in our case here rule one thousand and nine is a political and it says that a claim of exemption may be amended as a matter of course at any time before the case is closed this case was closed in two thousand nine and it had been closed for several years until it was reopened in two thousand and thirteen so the trustee says that this rule means that after the bankruptcy case has been closed a debtor can only amend a claim of exemptions if the bankruptcy court allows that amendment and the case law says that the debtor does not have an absolute right to the allowance of an amendment after the case has been closed before the case is closed the debtor may amend a claim of exemption exemptions as a matter of course and that language comes from rule fifteen of the federal rules of soap seizure which allow amendments in certain circumstances as a matter of course the bankruptcy court interpreted rule one thousand and nine as allowing an amendment of a claim of exemptions as a matter of course at any time that the case is open what this would mean in practice is that it plans exemptions could be amended at any time whether or not the case had already been closed so long as the case is reopened for that purpose and reopening a bankruptcy case is routine there open for a number of right of different purpose the district court when we appealed to the district court from the bank to court's ruling the district court disagreed with the bank to court on this point and for good reason rule one thousand nine places a procedural limit on an amendment to a claim exemptions to place the deadline on that amendment this is unremarkable because the court will contain many time limits and deadlines clearly the united states supreme court has the authority to adopt court rules happens on the case is real the reason for that difference well first of all there is a variety of consequences to the closing of a case it sets it results in deadlines for a number of things that has results in a number of things occurring at the closing of the case all the property of the state is abandoned it's no longer property the state there is no more a state the property reverts back to whoever owned it prior to the bankruptcy such as the debt or the closing of the case triggers a deadline for the trustee to seek to revoke the discharge a discharge can be revoked would be the reason none of those things appear to be relevant to the question here what happens when the case is closed the problem is i don't see why it should make a difference if the case is in real well it's from the standpoint of someone who seeks to amend his exemptions it's it's hard to see why there should be a deadline just like a plaintiff who filed his complaint a day late or a year late doesn't want to accept that that it's late there are simply deadlines for a variety of actions in the bankruptcy case and the supreme court in adopting the rules has imposed these deadlines has decided upon these deadlines there's a well of course every lawyer and judge knows how many deadlines there are in governing civil litigation and governing bankruptcy cases this is just another deadline is it particularly special i don't think so but it's a deadline nonetheless and it it in the policy behind it is finality because the the trustee who is administering the state needs to know who owns what who gets what property who gets what amount if there were no if a case could be i'm sorry if exemptions could be amended at any time whether or not the case is closed i think there would be practical problems that result because ought to be addressed either through the rules or through the statute not through are trying to figure out what the current rules and statutes how they weigh on this i think it and it should be addressed by the rules and it is addressed by the rules rule one thousand and nine says that a claim of exemptions can be amended at any time before the court case is closed as a matter of course in other words you don't need to seek leave the supreme court ruling in law versus eagle is interpreted by a number of people as meaning that before the case is closed as a matter of course means that there's not a basis for an objection by a trustee that the there's some impropriety with respect to the exemption something other than a substantive objection that the debtor claimed too  late that the debtor claimed the exemption in bad faith or something like that but the rule says that this is unequivocal right to claim an exemption or to amend an exemption expires when the case is closed and that was the situation in this case mr morse is just called so there is this other rule that i think both the bankruptcy and district court cite this rule four thousand and three that requires  a timely objection to be made here under to rule one thousand island the argument that the courts have made is that the trustee did not meet that requirement deadline the rule the deadline under rule four thousand and three is thirty days and the trustee met that deadline the district court found that i did not like the way that the trustee worded his objection to the exemption and said that now given the law given law versus eagle there would be a better way of phrasing your objection  believe that that's improper the trustee if the court felt that an amendment to the objection was required then the trustee should have been granted leave to amend his objection and that amendment would relate back and there wouldn't be any problem with the thirty day deadline there wouldn't be a jurisdictional problem as the district court found that the district court went down this path of first i think incorrectly determining that the trustees objection was somehow deficient and then the district court imposed also impose consequences substantive consequences based upon that determination there's no case i could find where where a litigant has been denied the right to to amend a pleading if the law is changed between the time that the pleading was filed in the time of the change in the law  there's i cited cases where in fact an objection to an exemption was allowed to be amended and it would and it related back under rule fifteen   the trustee and orland the trustee objected to those claims citing then prevailing case law which at that point did permit bankruptcy courts to deny debtors exemptions based on such considerations as bad  concealment of assets latches prejudice and the like to be clear at no time did the trust to you cite any specific statute in the code in support of his objection nor does any exist in our case at the  hearing that was held on april second two thousand and fourteen judge tucker held that the case law relied on by the trustee was now overruled by the opinion of the u s supreme court and lover siegel and he stated but my view of the to exempt that property in a situation if there was some particular provision in the bankruptcy code at that same hearing due to the newly issued law versus single opinion the trustee for the first time a that rule a thousand nine a did not apply to a case which was previously closed as in our case it states that a debtor may amend a schedule or playing good sampson as a matter of course any time prior to the closing of the case debtors agree with that position that argument was available to the trustee long before lover siegel made its appearance and the fact that the trustee failed to anticipate the lovers the single ruling is unfortunate for him but he nine a was intended to bar a debtor's right to amend as a matter of course then would the drafters not have indicated that would they not have dated in the case this does not apply to reopen cases or this applies all of the four first time close cases it seems to me your honor that the language is quite clear it says that once you open a case you have this  before this case was closed it has not been closed yet you you may again there's no case law to the contrary and the trustee even acknowledged he said i am aware of situations where debtors have been allowed to amend their exemptions with the reopening of the case but that's not really precedence i am aware of that practice it has happened that a trustee has not objected but that doesn't really mean anything well if someone you know your honour's the trustees will a thousand nine  case law support and is in fact contradicted by existing bankruptcy practice and more importantly the trust away that argument when you fail to asserted within the thirty day deadline would are we addressing the law versus eagle argument as well are we just focused on the thousand nine a argument at this point you may proceed and addressed law versus eagle if you wish ok section  misconduct citing eleven u s c section one o five eight the supreme court and segal noted that the bankruptcy court has authority to issue any order process for judgment that is necessary or appropriate to carry out the provisions of the bankruptcy co and they also possess inherent powers to sanction abusive litigation practices however the supreme court in sego also noted that accord may not contravene a specific statutory provision in exercising those statutory and inherent powers the supreme court then concluded that the surcharge in question did contravene a specific statutory provision of the code and that was section five twenty two case the single trustee argued that five twenty two establishes a procedure by which a debtor may claim an exemption but contains no directive requiring a court to allow an exemption there for recognizing and equitable pollin the bankruptcy court to deny an exemption by surcharging exempt property when is death or misconduct first a supreme court notice a surcharge was the same as an outright denial of love exemption the better name law then they know that that section five twenty two does not give courts  discretion to grant or deny the exemptions even when the statutory criteria are met however the supreme court held that the subject of the term may exempt goes to the debtor that is it's the debtor in whom the statute invest question not the court a debtor need not invoke an exemption the supreme court held but if it does the court may not refuse to honor the exemption absent a valid statutory basis the trustee n z siegel then argues that a handful of courts have claimed authority to disallow those exemptions based on fraudulent concealment of assets and the like however the supreme court responded that the bankruptcy court admits no such power and stated that for example in the case of a state created exemption the exemptions scope is determined by state law which may provide that certain types of debtor message conduct warrant denial of the exemption however it held that federal law provides  cashel on that point that you just made about state law defining the scope of the exemption you don't make any argument here that the homestead exemption law argument on the scope of the exemption i'm not sure i'm understanding you i know we did not use the homestead exemption that's not trustee but what is the basis for that exemption do you find that the so called wild card exemption yes you're on  five thousand five hundred of each one of the owners is asked what was the basis of this exhibit it statutory your honor it's the deed five wild card exemption what purpose does it put in the if used for anything that doesn't have a specific exemption for roughly forty nine thousand in attorney fees your honor and that was reduced i can add remember the numbers anymore but it was roughly eight thousand dollars and from my understanding judge tucker was trying to make sure that a certain percentage of that was going to go to the creditors exemption thus the surcharge was just another way of challenging the claims exemptions so the issue in warner's really no different than ours the claims exemptions are being challenged in both cases and judge a perilous distinction evaporate trustee said enough magic words to equate the fraudulent lee asserted language of four zero zero three be t just before you start your rebuttal would you respond to judge maris question about the ministry of expenses and attorney fees is that your understanding that there's about twenty five thousand or so dollars left that would be available for distribution of creditors should the exemption be allowed roughly i don't remember the exact dollar amounts but there's roughly the trustee took in roughly thirty thousand dollars in this case that's what we have to work with the administrative expenses the fiesta cation that i submitted to the court exceeded thirty thousand dollars judge tucker did not allow the fee application in full on an interim basis it was an interim fee up acacia not a final fee application so he only allowed it was somewhere around eight or ten or twelve thousand dollars somewhere in that range  news that the application includes the services provided in this particular matter in the district court and i guess you'll have services that you'll be seeking reimbursement of for th matter and the six circuit as well it includes this appeal relating to the law versus eagle issues and the objection to exemption and it includes a whole lot more this case this case has been interesting to say the least the one of the main things that one of the main tasks undertaken by my firm was getting approval of the settlement the trustee reach an agreement to settle with the creditors the debtors objected to that the appeal the bankruptcy court approved the settlement the debtors appealed to the district court and lost at the district court level on that issue of approval of the settlement that's my recollection is that that was the part of the case that required the most time oh well i'll let you and you know i know you want to address the substance of  know congress courts the public have constantly expressed concern over you know administrative expenses or the money that's available for distribution to creditors being eaten up this twenty thousand dollars thing seemingly will be consumed by administrative expenses by virtue of this appeal not by virtue of this appeal it will be if it's to be consumed first of all that remains to be seen the bankruptcy court hasn't allowed given a final allowance of the fees this case as i said most of the time i spent on this case was in a was in a trench warfare battle with the debtors regarding the approval of the settlement the trustee settled these claims against the mortgage company and an attorney a law firm represented the mortgage company the trustee settled those for thirty thousand dollars but debtors claimed that there but these claims this cause of action they had asserted was were i think they said eight million dollars it was millions of dollars that they claimed the trustees position what was that the debtors claims were frivolous outright frivolous and but we managed to get the creditors to pay thirty thousand dollars to settle these frivolous claims a nuisance value settlement and apparently they assessed that the debtors were a lot of nuisance the debtors had litigated with these creditors for believe he was correct in distinguishing law versus eagle that's an additional basis for the court to rule in the fifth trustees favor in this matter the but the main issue here i think the importance of the court's decision today shift in the law that could take place law versus eagle overturned all existing case law regarding the bad faith exception to or bad faith objections to  exemptions it wasn't a split in the circuits the all the circuit courts that have ruled on it were were unanimous in favor of recognizing a bad faith issue a call again cause i can't state i'm not going to say there's no other way there's no other practical way i can i'm not going to state it absolutely rather what you have is a debtor that has perhaps one asset  and the debtor by definition has filed bankruptcy probably because the debtor is on hard times and has little so there's there's often or usually no way of of disciplining the debtor or if you want to look at the disciplined function of this there's no other way other than to take away or reduce what the debtors going to be allowed to receive back from the bankruptcy estate that's the disciplinary function there's also the compensatory function compensable compensating the creditors or the estate because the debtor may have behaved in a way that was prejudicial and cost money to the i think the facts are sufficiently clear that it could be determined on a summary judgment standard more last but we haven't gotten to that if the court rules in favor the trustee will probably be remitted for factual