Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-06040/USCOURTS-ca8-04-06040-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

---

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

No. 04-6040 MN

In re: *

*

James W. and Sherri L. Ladd, *

*

Debtors. *

*

* Appeal from the United States

James W. and Sherri L. Ladd, * Bankruptcy Court for the 

* District of Minnesota

*

Plaintiffs-Appellants, *

*

v. *

*

Charles W. Ries, *

*

Defendant-Appellee. *

*

Submitted: December 1, 2004

Filed: February 1, 2005

Before SCHERMER, FEDERMAN, and MAHONEY, Bankruptcy Judges.

SCHERMER, Bankruptcy Judge.

Appellate Case: 04-6040 Page: 1 Date Filed: 02/01/2005 Entry ID: 1861762 
1

 The Honorable Gregory F. Kishel, United States Bankruptcy Judge for the

District of Minnesota.

2

 Minnesota law permits debtors in bankruptcy to claim either the federal

exemptions available under 11 U.S.C. § 522(d) or the state exemptions available

(continued...)

2

This is an appeal from an order of the bankruptcy court1

 entered on June 21,

2004, sustaining the objection of Charles W. Ries, Chapter 7 Trustee ("Trustee") to

the amended claim of homestead exemption filed by debtors James W. and Sherri L.

Ladd (“Debtors”). For the reasons stated below, we affirm.

I. Standard of Review

The facts are not in dispute. The allowance or disallowance of an exemption

is subject to de novo review. Drenttel v. Jensen-Carter (In re Drenttel), 309 B.R.

320, 322 (B.A.P. 8th Cir. 2004); Williams v. Bradley (In re Bradley), 294 B.R. 64, 68

(B.A.P. 8th Cir.). Likewise, the application of res judicata is subject to de novo

review. Banks v. Int’l Union Electronic, Electrical, Technical, Salaried & Mach.

Workers, 390 F.3d 1049, 1052 (8th Cir. 2004); Sianis v. Jensen, 294 F.3d 994, 999-

1000 (8th Cir. 2002). 

II. Background

The Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code

on September 26, 2002. The Debtors reside on approximately 127 acres of

contiguous farmland in rural Rock County, Minnesota (the “Property”). They earn

rental income from agricultural operations on the Property. The Debtors filed

schedules and statements accompanying their petition including a Schedule C in

which they asserted a homestead exemption in the Property under 11 U.S.C.

§ 522(d)(1).2

Appellate Case: 04-6040 Page: 2 Date Filed: 02/01/2005 Entry ID: 1861762 
2

(...continued)

under Minnesota law. Under 11 U.S.C.§ 522(b) a debtor may elect federal or state

exemptions unless the state opts out of the federal exemption scheme. Minnesota has

not opted out of the federal exemption scheme; therefore debtors domiciled in

Minnesota may elect either option.

3

On December 3, 2002, the Trustee filed an objection to the claimed homestead

exemption. The Debtors did not respond to the objection nor appear at the hearing

thereon. The bankruptcy court entered its order dated January 13, 2003 (“January

2003 Order”) sustaining the Trustee’s objection and disallowing the Debtors’

homestead exemption.

On April 23, 2004, approximately fifteen months after entry of the January

2003 Order, the Debtors filed an amended Schedule C asserting a homestead

exemption in the Property under the Minnesota homestead law. The Trustee objected

to the amended Minnesota homestead exemption.

At the hearing on the objection to the amended exemption, the Debtors

explained that they did not respond to the Trustee’s objection to the federal

homestead exemption because they believed they had an absolute right to amend their

exemptions pursuant to Federal Rule of Bankruptcy Procedure 1009(a). The court

sustained the Trustee’s objection on res judicata grounds and disallowed the Debtor’s

state homestead exemption. This appeal followed.

III. Discussion

This is a simple case of res judicata. The doctrine of res judicata bars a later

suit where (1) an earlier suit resulted in a final judgment on the merits; (2) the earlier

suit was based on proper jurisdiction; (3) both suits involve the same cause of action;

and (4) both suits involve the same parties or their privies. Lovell v. Mixon, 719 F.2d

1373, 1376 (8th Cir. 1983). Res judicata, also known as claim preclusion, bars the

Appellate Case: 04-6040 Page: 3 Date Filed: 02/01/2005 Entry ID: 1861762 
3

 If the Debtors’ argument that a contested matter is not the equivalent of a

civil lawsuit were correct, then the order sustaining the Trustee’s objection to their

exemption would not be a final order and they would have no right to this appeal.

Such is not the case. McGowan v. Ries (In re McGowan), 226 B.R. 13, 16 (B.A.P.

8th Cir. 1998). See, also Huebner v. Farmers State Bank, Grafton, Iowa (In re

Huebner), 986 F.2d 1222, 1224 (8th Cir. 1993), cert denied, 510 U.S. 900, 114 S.Ct.

272 (U.S. Oct. 4, 1993)(No. 93-5597), holding that an order denying a claimed

exemption was final for purposes of appeal.

4

relitigation of issues which were actually litigated as well as issues “which could have

been litigated in the first suit.” Id.(emphasis in original). Here, the Debtors’

entitlement to a homestead exemption was litigated when the Trustee objected to their

federal homestead exemption. The Debtors do not dispute that the January 2003

Order was final, that the earlier objection involved the same parties, or that the court

exercised proper jurisdiction when it entered the January 2003 Order. The Debtors

dispute that the objection to the federal exemption and the objection to the state

exemption are the same cause of action. We disagree.

The Debtors argue that res judicata does not apply to bankruptcy motions.

They try to distinguish a civil lawsuit from a contested matter within a bankruptcy

proceeding, arguing that a civil lawsuit is similar to an entire bankruptcy proceeding,

not an isolated contested matter within the bankruptcy proceeding.3

 They note that

amendments are routine in civil litigation and argue that the second claim of

exemption is merely an amended pleading within the bankruptcy proceeding. We

agree that amendments are routine in civil litigation and that motions to amend should

be freely granted. Fed. R. Civ. P. 15(a). Likewise, relief which was not specifically

pleaded may be granted at trial as long as the evidence demonstrates an entitlement

to such relief. Fed. R. Civ. P. 54(c). These rules apply in the bankruptcy context as

well as in federal civil litigation. Fed. R. Bankr. P. 7015, 7054. The problem with

the Debtors’ argument is that a bankruptcy motion is the equivalent of a civil lawsuit;

to allow the Debtors an amended exemption after entry of the January 2003 Order is

Appellate Case: 04-6040 Page: 4 Date Filed: 02/01/2005 Entry ID: 1861762 
4

 The limited avenues for post-judgment relief are set forth in Federal Rules

of Civil Procedure 59 and 60. Those rules apply in the bankruptcy context pursuant

to Federal Rules of Bankruptcy Procedure 9023 and 9024. The Debtors have not

attempted to seek relief under those options.

5

akin to allowing a party to add a new claim to a complaint after trial and entry of a

judgment. While liberal amendments are permitted in federal civil litigation and

relief can be granted even if not originally pleaded, once judgment has been entered

new claims generally cannot be raised and new theories cannot be argued. Similarly,

liberal amendments are permissible in the bankruptcy context and the bankruptcy

court may grant relief not specifically pleaded in the motion prior to entry of an order

or judgement resolving the matter. However, once a matter has been decided, the

parties cannot later assert a new theory to obtain the relief which they have already

been denied by a final court order.4

The procedural rules which the Debtors cite support our conclusion that once

an objection to an exemption is filed, a debtor must raise all theories under which the

asset in dispute may be exempted in the context of the resolution of the objection. An

objection to an exemption is a contested matter under Federal Rule of Bankruptcy

Procedure 9014. Federal Rule of Civil Procedure 54 applies in contested matters.

Fed. R. Bankr. P. 9014(c), 7054. The order resolving the objection to the exemption

is a final judgment. Fed. R. Civ. P. 54(a). Every final judgment shall grant the relief

to which the party in whose favor it is rendered is entitled, even if the party has not

demanded such relief in the party’s pleadings. Fed. R. Civ. P. 54(c). Consequently,

if an objection to an exemption is filed, the debtor has the right to prove his or her

entitlement to exemption of the asset at the hearing and the court may allow the

exemption under any theory which the debtor proves at trial. Once an objection to

the exemption of an asset has been filed, the debtor must raise all theories for the

exemption of that asset prior to the resolution of the exemption issue. Otherwise res

judicata prevents a later attempt to exempt the asset on a different theory.

Appellate Case: 04-6040 Page: 5 Date Filed: 02/01/2005 Entry ID: 1861762 
5

 “[T]he right to amend schedules to add exemptions ‘is not the same as the

right to the exemption.’” Knupfer v. Wolfberg (In re Wolfberg), 255 B.R. 879, 883

(B.A.P. 9th Cir. 2000), quoting Andermahr v. Barrus (In re Andermahr), 30 B.R. 532,

534 (B.A.P. 9th Cir. 1983). 

6

 The dissent compares Rule 1009(a) to Federal Rule of Bankruptcy

Procedure 3008 and to Sections 1112(b)(5), 1208(c)(5), and 1307(c)(5) of the

Bankruptcy Code. However, none of these provisions is applicable. Rule 3008

governs the reconsideration of an order allowing or disallowing a claim. Such

reconsideration is expressly authorized in Section 502 of the Bankruptcy Code. 11

U.S.C. § 502(j). Sections 1112(b)(5), 1208(c)(5), and 1307(c)(5) of the Bankruptcy

Code acknowledge modifications of plans in cases under Chapters 11, 12, and 13.

Modification of plans in Chapters 11, 12, and 13 are likewise expressly authorized

in the Bankruptcy Code. 11 U.S.C. §§ 1127(b), 1229, and 1329. The Bankruptcy

Code also expressly authorizes the revocation of a confirmation order in a Chapter 11

case. 11 U.S.C. § 1144. In contrast, the Bankruptcy Code does not authorize the

reconsideration of an order allowing or disallowing an exemption. Rule 1009(a)

should not be construed to provide relief not available under the Bankruptcy Code.

6

The Debtors also argue that Federal Rule of Bankruptcy Procedure 1009 gives

them the right to amend their exemptions at any time prior to the closing of their

bankruptcy case. This is true. They have the right to file an amended Schedule C

asserting exemptions at any time before their case is closed. Fed. R. Bankr. P.

1009(a). However, this does not mean any exemption they assert will be allowed.

The Debtors confuse the filing of a schedule of exemptions with the allowance of an

exemption.5

 Even though the Debtors may be able to file a new schedule of

exemptions, Rule 1009 does not prevent the Trustee from objecting to a newly

asserted exemption nor does it prevent the bankruptcy court from denying a new

theory for exempting property on the grounds of res judicata where the court has

already ruled on the exemptibility of such property.6

The application of res judicata in the context of bankruptcy exemptions is not

new. At least two bankruptcy judges from the District of Minnesota have published

opinions applying res judicata to prevent a second attempt to exempt an asset after

Appellate Case: 04-6040 Page: 6 Date Filed: 02/01/2005 Entry ID: 1861762 
7

 See also In re Wolfberg, supra, and Magallanes v. Williams (In re

Magallanes), 96 B.R. 253 (B.A.P. 9th Cir. 1988), applying res judicata in the claim

exemption context.

7

the entry of an order sustaining an objection to an earlier asserted exemption of the

same asset. In re Walls, 249 B.R. 506, 508 (Bankr. D. Minn. 2000)(Kishel, J.)(“[T]he

adverse ruling on the Debtors’ prior claim of exemption does indeed preclude them

from raising a different substantive basis to exempt the same asset.”) ; In re Marshall,

224 B.R. 399, 400 (Bankr. D. Minn. 1998)(Kressel, J.)(“Because the debtor’s claim

that the [asset] is exempt has already been litigated and decided by a final judgment,

principles of res judicata prohibit the debtor from relitigating the exemptibility of the

[asset], even if he can come up with a new theory.”).7

 

The Debtors argue that the applicability of res judicata to exemptions places

them in an impossible position because the bankruptcy judge before whom their case

is pending does not allow alternative pleading of exemptions. In support of their

argument, the Debtors cite In re Cochrane, 178 B.R. 1011 (Bankr. D. Minn.

1995)(Kishel, J.). We disagree with the Debtors’ interpretation of Cochrane.

In Cochrane, the debtor owned a condominium in Florida and asserted a

homestead exemption in the condominium under Florida law. During the course of

the hearing on several objections to the homestead exemption, the debtor’s counsel

“opined in passing” that in any event the debtor was entitled to exclude or exempt the

condominium under a tenancy by the entireties theory. Id. at 1015. The court

sustained the objections to the homestead exemption and entered a separate order

determining that “thus far” the debtor had not formally claimed protection for any of

his assets under the Florida law of tenancy by the entireties and directed him to serve

and file an amended Schedule C to make that claim if he intended to do so. Id. The

court directed the debtor to file an amended Schedule C no later than a date certain,

“setting forth his final election as to his claims of exclusion or exemption in all of this

Appellate Case: 04-6040 Page: 7 Date Filed: 02/01/2005 Entry ID: 1861762 
8

 The judge presiding over the Debtors’ case published the Walls opinion

applying res judicta in the exemption context five years after the Cochrane decision.

In the present case, he acknowledged the application of alternative theories of

resolving an objection to an exemption. We simply disagree with the Debtors and

with the dissent that the Debtors could not have sought the allowance of a homestead

exemption under state law at the time of the hearing on the Trustee’s original

(continued...)

8

[sic] assets. For the remaining pendency of this bankruptcy case, the Debtor shall

have no right to file a further amended Schedule C.” Id. at 1017. In that order, the

court noted that the debtor “should not be allowed to play an extended game of ‘hide

the ball.’” Id. In response to the order, the debtor filed an Amended Schedule C

asserting exemptions under Florida law and an Alternative Schedule C asserting

exemptions under Minnesota law. The court held that the debtor’s tactic for

attempting to assert alternative exemptions at that juncture was “just the sort of

maneuvering that the Court sought to prohibit” in the earlier order. Id.

The Cochrane court noted that no basis exists in the Federal Rules of

Bankruptcy Procedure for proposing an alternative claim of exemptions at the same

time as one asserts a main claim in a Schedule C. The Debtors rely on this statement

of the court for their argument that the judge does not allow alternative pleadings of

exemptions. We disagree. First of all, the statement must be kept in context. The

ruling disallowing the “alternative theories” was based on the debtor’s violation of

the prior order requiring the debtor to make a final election with respect to

exemptions. The statement regarding whether the rules countenance alternative

exemptions was dicta. Second, the Cochrane court had already given the debtor a

second bite at the apple after losing his first attempt at exempting his property by

directing the debtor to file any amended schedule of exemptions by a date certain.

Third, in the present case, at the hearing on the objection to the Debtors’ state

exemption, the court acknowledged that a “claim [of exemption] may be resolvable

by application of law in the alternative.” (Transcript, p.11.)8

 Finally, the Debtors

Appellate Case: 04-6040 Page: 8 Date Filed: 02/01/2005 Entry ID: 1861762 
8

(...continued)

objection to the federal homestead exemption.

9

have not demonstrated any evidence that they attempted to plead alternative bases for

exempting their homestead at any single point in time. Upon the filing of an

objection to a federal exemption, it would be appropriate for a debtor to respond as

to the merits of the objection, but to also ask, in the alternative, that the debtor be

allowed an exemption under state law. At the hearing, the debtor would have the

opportunity to establish entitlement to an exemption under either theory or, if denied

the right to present evidence on the alternative theory, the opportunity to make an

offer of proof to preserve rights on appeal under that theory. The bankruptcy court's

decision would be subject to review under either theory of exemption. Here,

however, the Debtors filed no response of any sort to the Trustee's objection, so they

failed to preserve the right to assert the state law exemption.

An opinion on the issue of successive claims of exemptions would be

incomplete without a mention of Kaelin v. Bassett (In re Kaelin), 308 F.3d 885 (8th

Cir. 2002). In Kaelin, the debtor listed a claim against his insurance company as an

asset of his estate and asserted an exemption with respect to the claim. The trustee

and creditors objected to the exemption. The matter was settled with a consent order

determining that the claim against the insurer was non-exempt property. The trustee

hired counsel to pursue the claim against the insurer. The trustee later amended the

employment application to expand the scope of counsel’s employment to include a

malpractice claim against the debtor’s pre-petition personal injury attorney. The

debtor had been previously unaware of the possible malpractice claim and within a

week of learning of its existence filed an amended schedule of assets and filed a

motion for leave to amend his Schedule C to assert an exemption with respect to the

claim. The bankruptcy court denied the motion for leave to amend the exemption

schedule as being in bad faith. The Eighth Circuit Court of Appeals reversed. The

court noted the general rule allowing liberal amendment of exemption claims, but

Appellate Case: 04-6040 Page: 9 Date Filed: 02/01/2005 Entry ID: 1861762 
10

acknowledged that the right to amend is not absolute. Bad faith and prejudice to

creditors are two exceptions to the liberal right to amend exemptions. The court

concluded that neither existed in that case and therefore reversed the denial of the

debtor’s motion to amend exemptions.

The facts in Kaelin differ substantially from the case at hand. In Kaelin, the

debtor became aware of an asset during the course of his bankruptcy proceeding and

promptly scheduled the asset and attempted to exempt it. Kaelin involved the

exemption of an asset that the debtor had not previously exempted. Res judicata was

not applicable because there had been no litigation regarding the exemption of the

newly discovered and newly exempted asset. Kaelin does not control the present

situation and its holding does not preclude the application of res judicata in the

exemption context.

Similarly, the recent decision of this court in Ardrey v. Blackwell (In re

Ardrey), 316 B.R. 531 (B.A.P. 8th Cir. 2004), merits mention; however, it likewise has

no affect on the application of res judicata in the present case. In Ardrey, the debtor

scheduled an exemption of $1,000 in tax refunds. The debtor later received a tax

refund in excess of $1,000. The trustee sought and obtained an order directing the

debtor to turn over the excess tax refund which the debtor had not exempted. The

court found that the debtor had not exempted the excess tax refund and entered a

judgment directing the debtor to turn the excess refund over to the trustee. After

entry of the judgment, the debtor amended her schedules to assert an exemption in the

excess tax refund under a statute pursuant to which the debtor had not previously

sought any exemption. The trustee objected to the amended exemption. The

bankruptcy court sustained the objection because the trustee had substantially

administered the asset prior to the asserted exemption and to allow the exemption at

that juncture would be unduly prejudicial to creditors. On appeal, the BAP held that

the trial court erred when it found that the trustee had substantially administered the

asset and therefore reversed the order sustaining the objection to the exemption.

Appellate Case: 04-6040 Page: 10 Date Filed: 02/01/2005 Entry ID: 1861762 
11

Ardrey, like Kaelin, did not involve res judicata. In Ardrey the trustee had not

previously objected to the debtor’s exemption of her tax refund. Therefore, no final

judgment on the issue of the exemptibility of the debtor’s tax refund existed.

Consequently, res judicata did not apply.

We acknowledge the harshness of the result in this case. Had the Debtors

timely asserted a homestead exemption under Minnesota law in response to the

objection to the federal exemption, the Trustee admits that he would not have

objected to the state exemption. However, the Debtors failed to respond to the

objection, despite law in Minnesota holding that the resulting order would have res

judicata effect. Unfortunately, the Debtors’ failure to consider the doctrine of res

judicata does not undo its effect nor change the result in this case.

IV. Conclusion

In conclusion, this is a simple case of res judicata. A debtor’s right to liberally

amend schedules does not override the application of res judicata which in this case

prevents the Debtors from seeking to revisit the issue of the exemptibility of their

homestead. If the Debtors believed they were entitled to a homestead exemption

under any theory, including a theory other than the one asserted in their original

Schedule C, they should have raised the issue in response to the Trustee’s objection

to their original federal homestead exemption. The Debtors cannot wait more than

a year after the court decided the issue and attempt to relitigate the matter under a new

theory. The order sustaining the Trustee’s objection to the Debtor’s state homestead

exemption is AFFIRMED.

MAHONEY, Bankruptcy Judge, dissenting.

I respectfully dissent. The majority finds, as did the trial court, that once a

decision is made denying a claim of exemption under the federal exemption statute,

Appellate Case: 04-6040 Page: 11 Date Filed: 02/01/2005 Entry ID: 1861762 
12

the debtors are forever after precluded from amending their claim of exemption to

obtain the benefits of the Minnesota exemption statutes. Such a determination is

based upon a misapplication of the “res judicata” doctrine or the “claims preclusion”

doctrine. To reach such a result, the majority, as did the trial court, treat the denial of

a claim of exemptions as if it is analogous to ordinary civil litigation in the federal

courts. By treating the contested claim of exemption as ordinary civil litigation, the

majority finds that the doctrine of res judicata bars a later suit where (1) an earlier suit

resulted in a final judgment on the merits; (2) the earlier suit was based on proper

jurisdiction; (3) both suits involve the same cause of action; and (4) both suits involve

the same parties or their privies. Lovell v. Mixon, 719 F.2d 1373, 1376 (8th Cir.

1983).

In Lovell, it was made clear that the doctrine prohibits relitigation of issues

which were actually litigated as well as those “which could have been litigated in the

first suit.” Id. (emphasis in original).

However, as the Eighth Circuit Court of Appeals noted in Huebner v. Farmers

State Bank (In re Huebner), 986 F.2d 1222 (8th Cir. 1993), cert denied, 510 U.S. 900,

114 S.Ct. 272 (U.S. Oct. 4, 1993)(No. 93-5597), “[f]inality for bankruptcy purposes

is a complex subject.” Id. at 1223. In Huebner, the court gave a practical example of

“why at least most exemption decisions should be final orders” under the finality

standards set out in prior case law. Id. at 1224. Although discussing the matter

generally, the court did not hold that all exemption decisions are final orders. In

addition, the court did not suggest that exemption litigation decisions were final

orders which were analogous to orders entered in ordinary civil litigation which

would preclude further activity with regard to a debtor’s claim of exemption. 

I suggest that a contested matter dealing with a claim of exemption under the

federal statute and an objection by the trustee is much more analogous to the filing

of a proof of claim by a creditor and an objection by an interested party. In such a

Appellate Case: 04-6040 Page: 12 Date Filed: 02/01/2005 Entry ID: 1861762 
13

contested matter, even after a determination favorable to or adverse to the claimant,

Federal Rule of Bankruptcy Procedure 3008 permits reconsideration of such an order

when a request is made by a party in interest. Rule 1009(a), which gives the debtor

the right to amend a petition, list, schedule or statement as a matter of course at any

time before the case is closed, is of the same ilk as Rule 3008 which gives the

creditors, the trustee, or the debtor a second bite at the apple with regard to claims

allowance or denial.

Similarly, the Bankruptcy Code itself permits amendment to Chapter 11,

Chapter 12, and Chapter 13 plans after the initial plans have been contested and

rejected by the court. See 11 U.S.C. § 1112(b)(5); § 1208(c)(5); § 1307(c)(5); Lewis

v. United States, 992 F.2d 767, 772 (8th Cir. 1993) (a bankruptcy court order that

neither confirms a plan nor dismisses the underlying petition is not final); Vincent v.

Fairbanks Capital Corp. (In re Vincent), 301 B.R. 732 (B.A.P. 8th Cir. 2003) (motion

denying debtor’s motion to modify a confirmed Chapter 13 plan is no more a final

order for appeal purposes than an order denying confirmation of a plan); Michels v.

Maynard Sav. Bank (In re Michels), 305 B.R. 868, 871 (B.A.P. 8th Cir. 2004)

(because the appeal was from an order which both denied confirmation of a Chapter

12 plan and dismissed the case, the appeal was from a final appealable order.). Each

of the statutory sections referred to above permit the court to convert or dismiss the

case, whichever is in the best interest of creditors and the estate, for cause, if the court

has determined that it should not permit the debtor additional time to file another plan

or modify the current plan. This statutory language assumes the initial order denying

confirmation of a plan under any of these chapters is not a final order to which res

judicata applies. The cited case law confirms the assumption.

Next, even if one assumes that the res judicata doctrine applies, it only applies

if the issue being raised in the second “lawsuit” could have been litigated in the first

suit. Lovell v. Mixon, 719 F.2d at 1376. Because the available relief in the federal

exemption statute is significantly different from the relief available in the Minnesota

Appellate Case: 04-6040 Page: 13 Date Filed: 02/01/2005 Entry ID: 1861762 
14

statutes, it is my position that they are different “causes of action” and could not have

been litigated in the initial contested matter concerning the claim of exemption under

the federal statute.

If, on the other hand, the federal and state statutes do not constitute separate

causes of action, but simply alternative relief that should have been pleaded in the

first contested matter, the debtors face another problem. In the District of Minnesota,

by virtue of the Marshall and Walls decisions relied upon by the majority and the

Cochrane decision to which the majority gives very little consideration, a debtor must

choose whether to proceed with a claim of exemption under the federal statute or the

Minnesota statutes, and the debtor is precluded from presenting a claim under an

alternative statutory scheme. Although the majority suggests that the trial court

acknowledges the right of debtors to plead in the alternative, and the majority

suggests any contrary language in Cochrane is “dicta,” the language in Cochrane is

clear and to the point. Any lawyer who would attempt to list claims of exemption

under the federal statute and, alternatively, under the Minnesota statute, would, by

virtue of Cochrane, risk sanctions under Rule 9011. The Cochrane language I refer

to is as follows:

Second, there is no basis under the Federal Rules of Bankruptcy

Procedure for proposing an “alternative” claim of exemptions at the

same time as one asserts a “main” claim in a Schedule C. The underlying

though[t] could be tagged as, “well, if you don’t like that theory, how do

you like this one?” This little dodge, however, runs entirely contrary to

the clear purpose of Fed. R. Bankr. P. 2007, 4003(a), and 1009: to

provide a procedural framework for the raising of exemption issues one

at a time, and not two-or-more at a time. The vehicle for this assertion

of exemption rights is just not countenanced under the applicable rules

or the prescribed forms, and the Debtor is out of bounds for using it.

178 B.R. at 1017-18. 

Appellate Case: 04-6040 Page: 14 Date Filed: 02/01/2005 Entry ID: 1861762 
15

The majority, although dismissing such language as “dicta,” in this case has

fashioned a procedure by which it suggests counsel for debtors may evade the clear

import of Cochrane. The majority tells counsel for debtors to ignore Cochrane and

plead in the alternative, thereby preserving all appeal rights in case a bankruptcy

judge in Minnesota decides the Cochrane language is good precedent and follows it.

Rather than promulgating a procedure which suggests that debtors may

somehow get around the Cochrane language, the majority should simply overrule

Cochrane to the extent it can be construed to mean debtors cannot plead a claim of

exemption under both federal and state laws in the alternative. Of course, such a

procedure as suggested by the majority, and an order overruling Cochrane as I

suggest, would both be totally unnecessary if the majority would simply acknowledge

that litigation of contested matters is, under the Bankruptcy Code and the Bankruptcy

Rules, much more complex and much more liberal with regard to amendments than

is ordinarily the case with general civil litigation. With such an acknowledgment, the

majority would, as I would, reverse the decision of the trial court and remand for a

determination of the rights of the debtors with regard to a claim of exemption under

the Minnesota statutes.

____________________

Appellate Case: 04-6040 Page: 15 Date Filed: 02/01/2005 Entry ID: 1861762