Case Name: In re Toby SCRIVNER and Angelique Pisano, Debtors. Toby Scrivner and Angelique Pisano, Appellants, v. John D. Mashburn, Trustee, Appellee
Court: United States Bankruptcy Appellate Panel for the Tenth Circuit
Jurisdiction: United States
Decision Date: 2007-06-20
Citations: 370 B.R. 346
Docket Number: BAP No. 06-122; Bankruptcy No. 05-30226-WV
Parties: In re Toby SCRIVNER and Angelique Pisano, Debtors. Toby Scrivner and Angelique Pisano, Appellants, v. John D. Mashburn, Trustee, Appellee.
Judges: Before McFEELEY, Chief Judge, CLARK, and THURMAN, Bankruptcy Judges.
Reporter: West's Bankruptcy Reporter
Volume: 370
Pages: 346–362

Head Matter:
In re Toby SCRIVNER and Angelique Pisano, Debtors. Toby Scrivner and Angelique Pisano, Appellants, v. John D. Mashburn, Trustee, Appellee.
BAP No. 06-122.
Bankruptcy No. 05-30226-WV.
United States Bankruptcy Appellate Panel of the Tenth Circuit.
June 20, 2007.
Submitted on the briefs: Sam George Caporal and Mark W. Hayes, Oklahoma City, OK, for Appellants.
John D. Mashburn, Garvin, Agee, Carlton & Mashburn, P.C., Edmond, OK, for Appellee.
Before McFEELEY, Chief Judge, CLARK, and THURMAN, Bankruptcy Judges.
The parties did not request oral argument, and after examining the briefs and appellate record, the Court has determined unanimously that oral argument would not materially assist in the determination of this appeal. See Fed. R. Bankr.P. 8012. The case is therefore ordered submitted without oral argument.

Opinion:
OPINION
THURMAN, Bankruptcy Judge.
Toby Scrivner and Angelique Pisano (the "Debtors") appeal an order authorizing the trustee to "surcharge" the Debtors' exempt assets to collect the value of property of the estate not turned over pursuant to an earlier court order. For the reasons stated below, the decision of the bankruptcy court is AFFIRMED.
I. FACTUAL BACKGROUND
The Debtors filed for Chapter 7 bankruptcy relief on October 14, 2005. John Mashburn, the Appellee in this case, was appointed the Chapter 7 trustee (the "Trustee"). At the time of filing, the Debtors' only significant source of income was funds received each month for a .5% interest in a television show called "Cheaters," which they disclosed on their Bankruptcy Schedules. They did not initially claim an exemption for their interest in Cheaters, and on June 1, 2006, after notice and hearing, the bankruptcy court issued an Order Granting Trustee's Motion to Turn Over (the "Turnover Order") requiring the Debtors to turn over the income received from Cheaters post-petition (the "Cheaters Funds").
The Debtors did not appeal the Turnover Order and failed to surrender the Cheaters Funds (approximately $17,000), some $13,000 of which was received after the Debtors received notice of the Trustee's Turnover Motion. In response, the Trustee served the producer of Cheaters with a copy of the Turnover Order and demanded that Cheaters begin paying the monthly payments directly to the Trustee. The Trustee also filed a Motion for Contempt and to Surcharge Debtor's Exemptions (the "Surcharge Motion"). The Debtors filed a written objection and the Court conducted a contested hearing on the Surcharge Motion on October 17, 2006, upon proper notice. The bankruptcy court issued an Order granting the Surcharge Motion (the "Surcharge Order") on October 24, 2006. Specifically, the bankruptcy court ordered the Debtors to surrender and turn over to the Trustee $17,424.75 plus interest and $1,300 as a "reasonable attorney fee incurred by the Trustee in bringing this Motion."
The Order further provided:
5. In the event said funds are not delivered to the Trustee by November 6, 2006, then the Trustee may surcharge and is hereby granted a surcharge against the Debtors' exempt property, including Debtors' retirement funds, to the extent necessary to satisfy the sums owed under paragraphs 1 through 3 above.
6. Said surcharge shall be in the amount necessary to net to the Estate and Trustee the payment of the sums owed under paragraphs 1 through 3 above and that any taxes, penalties or fees incurred by reason of the withdrawal or borrowing of said retirement accounts shall be born by the Debtors. The Estate and Trustee shall bear such tax liability as would have been incurred for receipt of the distributions from Debtors' ownership of the Limited Partnership in the Cheaters LLC TV Show as if such funds had been turned over to the Trustee without surcharge of the exempt assets.
The Debtors failed to pay the Cheaters Funds to the Trustee by November 6, 2006.
The Debtors timely appeal the Surcharge Order, arguing that the funds at issue are exempt under Oklahoma law, that the bankruptcy court lacked authority to surcharge their exempt property, and that the bankruptcy court followed improper procedure in considering and issuing the Surcharge Order.
II. JURISDICTION
This Court has jurisdiction to hear timely appeals from final judgments, orders, and decrees of bankruptcy courts within the Tenth Circuit, unless one of the parties elects to have the appeal heard by a district court. Neither party elected to have this appeal heard by the United States District Court for Western District of Oklahoma.
A decision is considered final if it "disposes of a particular adversary proceeding or discrete controversy pursued within the broader framework cast by the petition." In this case, the Surcharge Order ended the controversy of the Trustee's attempts to recover the Cheaters Funds. Thus, the Surcharge Order is a final order and the Court determines that jurisdiction over this appeal is appropriate.
II. ANALYSIS
A. Standard of Review
None of the factual determinations underlying the Surcharge Order are in dispute. The Court will review the bankruptcy court's authority to issue the Surcharge Order under de novo review, and will review the bankruptcy court's decision to apply that authority for an abuse of discretion.
B. Propriety of the Turnover Order
At the outset, the Debtors argue that the bankruptcy court abused its discretion in ordering them to turn over the income received from Cheaters because they believe that those funds are exempt. The Trustee argues that the Debtors are barred by the doctrine of Law of the Case from arguing their right to assert an exemption in the Cheaters funds. We agree.
Under the doctrine of Law of the Case, " '[a] legal decision made at one stage of litigation, unchallenged in a subsequent appeal when the opportunity to do so existed, becomes the law of the case for future stages of the same litigation, and the parties are deemed to have waived the right to challenge that decision at a later time.' " "The doctrine applies to issues previously decided, either explicitly or by necessary implication." A debtor's entitlement to an exemption is a question of law.
In the course of issuing the Turnover Order, the bankruptcy court implicitly determined that the Cheaters Funds were property of the estate and not exempt from the Trustee's administration in this case. The Debtors did not appeal the Turnover Order so the determination that the Cheaters funds were property of the estate became Law of the Case. The Debtors may not argue the merits of the legal determinations underlying the Turnover Order in this appeal.
C. Election of Remedies Defense and Procedure of the Bankruptcy Court
The Debtors further argue that the Trustee is estopped from seeking turnover of the Cheaters Funds they received post-petition under the Election of Remedies doctrine. They argue that by demanding that Cheaters make payments to the Trustee, he may not choose a different remedy to enforce the Turnover Order. They also argue that the Surcharge Motion was procedurally faulty because the Trustee failed to serve a summons on the Debtors and their counsel and they contend service of a summons is required under Bankruptcy Rule 9014.
These issues were not raised by the Debtors in objecting to the Trustee's Surcharge Motion, - and they may not raise it for the first time on appeal.
D. Bankruptcy Courts Have Authority to Surcharge Exemptions
The crux of this appeal is whether the bankruptcy court had authority to issue the Surcharge Order. We hold that it did.
Under 11 U.S.C. § 704(1) , a Chapter 7 trustee is required to "collect and reduce to money the property of the estate.... " Likewise, a Chapter 7 debtor is required to "cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under this title" and "surrender to the trustee all property of the es-táte!.]" Failure of the debtor to honor these responsibilities may lead to judgments against the debtor requiring turnover or barring the debtor's Chapter 7 discharge.
To enforce these continuing obligations, a majority of courts hold that a bankruptcy court is empowered under § 105(a) to authorize the trustee to "surcharge" the debtor's exempt assets to compensate the estate for property of the estate which the debtor refuses to surrender. We agree. Section 105(a) provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Section 704 and 521 of the Bankruptcy Code require the debtor to turn over property of the estate to a Chapter 7 trustee. In authorizing a Chapter 7 trustee to enforce these obligations against exempt property, a bankruptcy court does nothing more than issue an order "that is necessary or appropriate to carry out the provisions" of the Bankruptcy Code. To that end, courts issuing surcharge orders are not using Section 105(a) in the abstract to create new law, but are using it to augment those obligations found elsewhere in the Bankruptcy Code.
The Court finds persuasive the analysis in In re Mazon, wherein the court explained that concealing and failing to turn over assets to a Chapter 7 trustee is tantamount to claiming an additional and unauthorized exemption "because the concealment and dissipation prevents administration of the assets by a trustee for the benefit of creditors." The Mazon court reasoned that a court's ability to issue surcharge orders is necessary to "prevent what would otherwise be a fraud on the court and on creditors caused by the debtor's failure to schedule and turn over estate assets."
As the Ninth Circuit Court of Appeals stated in In re Latman, authorizing a surcharge of exempt property is not punitive in nature. Where a debtor deserves to be punished for failing to turn over property of the estate, a trustee should file an adversary proceeding to bar or revoke the debtor's discharge. The result of a judgment barring a debtor's discharge is that property of the estate is still subject to the trustee's administration and the debtor does not receive the benefit of a discharge. But even when a debtor's dis charge is revoked, the debtor is still required to surrender, and the trustee is still required to pursue, property of the estate. As such, revoking the debtor's discharge does little to benefit the estate. A debtor whose discharge is revoked is likely to be even more recalcitrant in responding to a trustee's efforts to recover property of the estate. In contrast, surcharging a debtor's exemption is aimed at the administration of the estate only, and does not punish the debtor. In essence, surcharging the debtor's exempt property is a way to accomplish what the debtor was required to do in the first place — provide specific value to the estate. Where the property withheld by the debtor is definite, there is no reason why a court cannot reach that same amount of exempt property. As the Lat-man court recognized, to hold otherwise would allow the debtor a windfall in that the debtor's recalcitrance would grant the debtor an avenue to steal from the estate. The debtor would leave bankruptcy with exempt assets plus the assets which he or she failed to turn over to the trustee. This result would be inequitable and at odds with specific provisions of the Bankruptcy Code. It is precisely the kind of situation § 105(a) was designed to remedy.
To that end, we agree with the holding of Latman and hold that a bankruptcy court may authorize a trustee to "surcharge" a debtor's exempt property to the extent necessary to make the estate whole where a debtor fails to turn over non-exempt property of the estate after being ordered to do so. A bankruptcy court authorizing a "surcharge" need not make a finding of fraud or hold the debtor in contempt. Of course, a court's use § 105(a) is discretionary and equitable in nature, so a "surcharge" should be authorized only where it is necessary to further the provisions of the Bankruptcy Code and where such an order is equitable.
In this case, the bankruptcy court's Turnover Order implicitly found that the Cheaters Funds were property of the estate and not exempt, ordering the Debtors to turn those funds over to the Trustee. The Debtors failed to comply with the Turnover Order so the Surcharge Order ensued. From the record on appeal, we cannot say that the bankruptcy court abused its discretion in issuing the.Surcharge Order.
The Debtors argue that even if the Surcharge Order was appropriate, it had the effect of a "double surcharge" because it required the Debtors to pay the taxes and fees associated with liquidating their exempt retirement accounts. We disagree. The goal of a surcharge is to make the estate whole for a debtor's failure to turn over property of the estate. The estate should be in the same position as it would have been if the debtor had timely complied with the trustee's turnover requests. In this case, if the estate was forced to pay the fees for liquidating the exempt retirement accounts, the estate would not be made whole. It would be compensated for the amount of the Cheaters Funds, but would be decreased by the amount of the fees and penalties incurred to liquidate the retirement funds.
It may be argued that a debtor's exemptions are sacrosanct under cases such as Taylor v. Freeland & Kronz, and that today's decision infringes on a debt- or's right to protect exempt property. We believe this argument goes too far. A debtor's right to exempt property from the bankruptcy estate is significant and should be protected by a bankruptcy court. But that right is not absolute. Bankruptcy courts may impact a debtor's exemption in a variety of contexts, such as attempts to conceal property or where amendments to exemption claims are made in bad faith or prejudice third parties. Unlike those situations, today's decision has only a minimal impact on a debtor's exemptions since it impacts the form but not the value thereof. Because a surcharge should only be for the value of property the debtor withheld from the estate, the debtor will leave the bankruptcy case with the property of the same value as if he had timely surrendered property of the estate and retained only exempt property.
An argument might be made that the bankruptcy court lacked jurisdiction to issue the Surcharge Order because the funds in the retirement account may have never been property of the estate under Patterson v. Shumate. The record on appeal does not indicate whether the Debtors' retirement account was qualified under the Employee Retirement Income Security Act ("ERISA"), nor did the Debtors argue this issue before the bankruptcy court or on appeal. They argue only that the retirement funds were exempt property. As such, the Debtors have waived their right to argue that the bankruptcy court lacked jurisdiction over the retirement account under Patterson, To be sure, if the Debtors had argued this issue before the bankruptcy court and if the evidence on appeal established that the retirement account was ERISA qualified, our holding might be different. But without such arguments and facts before us, we can only conclude that the retirement account was exempt property — property that was initially property of the estate but then became exempt. This is an important distinction because bankruptcy courts have jurisdiction over exempt property but lack jurisdiction over property which was never property of the estate in the first place. Since the Debtors argue only that the retirement funds are exempt property and do not address ERISA issues, we believe the bankruptcy court had jurisdiction to issue the Surcharge Order.
Today's decision has less to do with the protections afforded a debtor's exemptions than it has to do with enforcing the provisions of the Bankruptcy Code and avoiding manipulation of the estate. As one court stated, "the purpose is not to 'punish' the debtor, but to reach an equitable result by preserving the spirit of the Bankruptcy Code and the creditors' reasonable expectations in the event of liquidation." We are sensitive to the notion that bankruptcy courts have an obligation to protect a debtor's right to exemptions. In determining whether a surcharge is appropriate, bankruptcy courts should balance the concern for protecting exemptions with the need to enforce the debtor's responsibilities under the Code. We also recognize that the facts of each case will pose distinct and different concerns for a bankruptcy court. We hold that in this case the bankruptcy court did not abuse its discretion in determining that a surcharge was appropriate.
IV. CONCLUSION
The decision of the bankruptcy court is AFFIRMED.
.It appears from the record submitted on appeal that the first time the Debtors asserted an exemption in the income received from Cheaters was in response to the Trustee's Motion to Surcharge exempt assets, filed after the Debtors failed to comply with the Turnover Order. It does not appear that the Debtors have amended their Bankruptcy Schedules to formally claim this exemption.
. See Response to Trustee's Motion for Order of Contempt and Motion to Surcharge Debt- or's [sic] Exemptions for Failure to Comply with Order for Turnover Brief in Support, in Appellant's [sic] Appendix at 78.
. Order on Trustee's Motion for Order of Contempt and Motion to Surcharge Debtors' Exemptions for Failure to Comply with Order for Turnover at 2, in Appellant's [sic] Appendix at 88.
. The Debtors' Notice of Appeal refers to an order issued on October 17, 2006 requiring the "turnover of $17,424.75." Appellant's Appendix at 90. Because the original Turnover Order was issued on June 1, 2006, and the Debtors' Statement of Issues encompasses the merits of the Surcharge Order, the Court treats this appeal as relating to the Surcharge Order only, issued on October 24, 2006.
. 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr.P. 8002.
. In re Am. Ready Mix, Inc., 14 F.3d 1497, 1499 n. 2 (10th Cir.1994) (internal quotation marks omitted).
. Elder v. Holloway, 510 U.S. 510, 516, 114 S.Ct. 1019, 127 L.Ed.2d 344 (1994).
. Nardei v. Maughan (In re Maughan), 340 F.3d 337, 344 (6th Cir.2003).
. Concrete Works of Colo., Inc. v. City and County of Denver, 321 F.3d 950, 992 (10th Cir.2003) (quoting Capps v. Sullivan, 13 F.3d 350, 353 (10th Cir.1993)).
. Guidry v. Sheet Metal Workers Int'l Ass'n, Local No. 9, 10 F.3d 700, 705 (10th Cir.1993) (citation omitted).
. Fowler v. Shadel, 400 F.3d 1016, 1017 (7th Cir.2005).
. Whereas these arguments may have been raised orally below, the Debtors failed to provide the Court with a transcript of the hearing on the Surcharge Motion. See 10th Cir. BAP L.R. 8009—1 (b)(5) ("The appendix must contain all transcripts, or portions of transcripts, necessary for the court's review."). Even if we were to address the merits of Debtors' arguments relating to Rule 9014, we would dismiss them outright. Rule 9014(b) requires service of a contested motion pursuant to Rule 7004. It does not require the service of a summons.
. See Walker v. Mather (In re Mather), 959 F.2d 894, 896 (10th Cir.1992); Tele-Commc'ns, Inc. v. Comm'r, 104 F.3d 1229, 1233 (10th Cir.1997) (citing Anschutz Land & Livestock Co. v. Union Pac. R.R. C., 820 F.2d 338, 344 n. 5 (10th Cir.1987)) (Appellate courts "should not be considered a 'second shot' forum . where secondary, back-up theories may be mounted for the first time.").
. All statutory references herein are to the Bankruptcy Code, unless stated otherwise. Because the Debtors filed for Chapter 7 relief before October 17, 2005, the provisions of the Bankruptcy Code which apply in this case were those in effect before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
. 11 U.S.C. § 521(3).
. 11 U.S.C. § 521(4).
. See 11 U.S.C. § 727.
. Latman v. Burdette, 366 F.3d 774, 785-86 (9th Cir.2004); In re Mazon, 368 B.R. 906, 911, 2007 WL 1437370, at *4 (Bankr.M.D.Fla. May 11, 2007); In re Koss, 319 B.R. 317, 322-23 (Bankr.D.Mass.2005); In re Hamblen, 354 B.R. 322, 325-26 (Bankr.N.D.Ga.2006); In re Karl, 313 B.R. 827, 830 (Bankr.W.D.Mo.2004).
. A broad interpretation of the Supreme Court's recent decision in Marrama v. Citizens Bank of Massachusetts, — U.S. -, 127 S.Ct. 1105, 1112, 166 L.Ed.2d 956 (2007) further suggests that a bankruptcy court's authority under § 105(a) and general principles of equity is sufficient to issue orders (such as surcharge orders) necessary to avoid an abuse of the bankruptcy process. See also Christopher W. Frost, Marrama v. Citizens Bank of Massachusetts: Strict Construction Versus Inherent Authority, 27 No. 4 Bankr.Law Letter 1 (April 2007) ("Marrama may signify the Court's willingness . to consider the systematic limitations of the ban ruptcy process and the authority of the bankruptcy judge to guard against its abuse.").
. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988) (holding that whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code).
. In re Mazon, 368 B.R. 906, 909, 2007 WL 1437370, at *2 (Bankr.M.D.Fla. May 11, 2007)
. Id. 368 B.R. at 910, 2007 WL 1437370 at *3. The Court notes that Mazon involved debtors who both concealed and failed to turn over property of the estate, whereas the Debtors in the present case disclosed the Cheaters Funds from the outset of their case. Despite this distinction, the Court believes the analysis in Mazon relating to a court's authority to issue a surcharge order is insightful and relevant to this case.
. Latman v. Burdette, 366 F.3d 774, 785 (9th Cir.2004).
. Id. at 783.
. Id. at 786 ("[SJurcharge may be the only means fairly to ensure that debtors retain their statutory 'fresh start,' while also permitting creditors access to property in excess of that which is properly exempted under the Bankruptcy Code.").
. Id. at 785.
. There may be other situations where a surcharge order would be appropriate, but we need not discuss those in this appeal.
. See U.S. v. Energy Res. Co., 495 U.S. 545, 549, 110 S.Ct. 2139, 109 L.Ed.2d 580 (1990); In re Smart World Techs., LLC, 423 F.3d 166, 184 (2d Cir.2005) ("The equitable power conferred . by section 105(a) is the power to exercise equity in carrying out the provisions of the Bankruptcy Code, rather than to further the purposes of the Code generally, or otherwise to do the right thing.") (quoting In re Dairy Mart Convenience Stores, Inc., 351 F.3d 86, 92 (2d Cir.2003)).
.We are aware that the Latman court pointed to a more definite two part test for authorizing a "surcharge," but the authority for this test is unclear. 366 F.3d at 786. Section 105(a) is at heart a provision based in equity. We see no reason to unnecessarily bind a court's discretion.
. 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).
. The Court notes that even the Taylor Court did not address whether a bankruptcy court may employ authority under § 105(a) to disallow a claimed exemption after the time period had expired to object to the claimed exemptions.
. In re. Cogliano, 355 B.R. 792 (9th Cir.BAP2006).
. In re Kaelin, 308 F.3d 885 (8th Cir.2002).
. 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992).
. See supra n. 13.
. See In re Hamblen, 354 B.R. 322, 329-330 (Bankr.N.D.Ga.2006); see also Wal-Mart Stores, Inc. v. Carpenter (In re Carpenter), 245 B.R. 39, 52 (Bankr.E.D.Va.), aff'd, 252 B.R. 905 (E.D.Va.2000), aff'd, 36 Fed.Appx. 80 (4th Cir.2002) ("Although the exempt property is no longer property of the estate, the court still retains jurisdiction over the property[.]"); In re Stinson, 221 B.R. 726, 730 (Bankr. E.D.Mich.1998).
. In re Karl, 313 B.R. 827, 831 (Bankr.W.D.Mo.2004).