Court Opinion

ID: 196046
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:55:07+00
Date Added: 2024-06-11T09:42:33.590691
License: Public Domain

May 1, 1995       UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT

                                          
                                                    

No. 94-1346

                      ROBERT A. MERCER, JR.,

                        Debtor, Appellant,

                                v.

                     JASON MONZACK, ESQUIRE,

                            Appellee.

                                          
                                                    

     The  opinion of  this  Court issued  on  April 25,  1995  is
amended as follows:

     On page 4, between lines  5-6:  begin new   with  "The bank-
ruptcy court took the position that a Rule ..."

                  UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT

                                          
                                                    

No. 94-1346

                      ROBERT A. MERCER, JR.,

                        Debtor, Appellant,

                                v.

                     JASON MONZACK, ESQUIRE,

                            Appellee.

                                          
                                                    

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                 FOR THE DISTRICT OF RHODE ISLAND

      [Hon. Raymond J. Pettine, Senior U.S. District Judge]
                                                                    

                                          
                                                    

                              Before

                      Cyr, Boudin and Stahl,

                         Circuit Judges.
                                                 

                                          
                                                    

     Robert A. Mercer, Jr. on brief pro se.
                                    
     Christopher L. Russo and  Kirshenbaum & Kirshenbaum on brief
                                                                  
for appellee.

                                          
                                                    

                          April 25, 1995
                                          
                                                    

          CYR, Circuit Judge.   Robert A. Mercer, Jr., challenges
                    CYR, Circuit Judge.   
                                      

a  district court  judgment  affirming a  bankruptcy court  order

disallowing  most  of  Mercer's  exemption claim  relating  to  a

$50,000 settlement fund in a personal injury action.  We affirm.

                                I
                                          I

                            BACKGROUND
                                      BACKGROUND
                                                

          After Mercer  was injured in an  automobile accident in

January  1990, he  sued for  compensatory damages,  then  filed a

chapter  7 petition  while the  lawsuit was  still pending.   His

amended schedules of assets  valued the personal injury claim  at

$40,000,  and Schedule  B-4  asserted related  exemptions in  the

manner set  out in the margin.1  The chapter 7 trustee interposed

no  Rule 4003(b)  objection to  the list  of property  claimed as

exempt.   See Fed. R. Bankr. P. 4003(b) (fixing 30-day limitation
                       

period for filing objection); see  also Bankruptcy Code   522(l),
                                                 

                    
                              

     1The pertinent entries in Schedule B-4 were as follows:

Type of Property:
Location, Description,                                    Exempt
Use                               Statute                 Amount
                                                                          

Possible personal injury                                  DEBTOR
Settlement

Disability                    11 USC   522(d)(10)(C)      100%

Payment on account of         11 USC   522(d)(11)(D)      $7,500
  personal bodily injury

Payment in compensation for   11 USC   522(d)(11)(E)      100%
  loss of future earnings

Any property selected by      11 USC   522(d)(5)          $3,750
  debtor

                                2

11  U.S.C.    522(l).    The  personal injury  action  eventually

generated a $50,000 settlement fund,  with no specification as to

what,   if   any,   portion   represented  compensation   for   a

"disability,"  "personal  bodily  injury"  or  "loss   of  future

earnings."2  

          Mercer nevertheless  contended that the  entire $50,000
                                                                   

was  exempt  because he  had claimed  the  entire fund  exempt as

compensation   for   a   "disability"   under   Bankruptcy   Code

  522(d)(10)(C) or  compensation for  lost future  earnings under

Bankruptcy Code   522(d)(11)(E).   See  supra note 1.   Since  no
                                                       

Rule 4003(b) objection was submitted within the 30-day limitation

period,   Mercer  argued   that   the  bankruptcy   court  lacked

jurisdiction to  entertain the  motion to disallow  his exemption

claim.  He relied  on Taylor v. Freeland & Kronz, 112 S. Ct. 1644
                                                          

(1992),  which held  that a  bankruptcy court  could not  order a

chapter  7 debtor's  attorney  to turn  over proceeds  ultimately

recovered in a  prepetition lawsuit brought by the  debtor, where

the trustee had decided to  file no Rule 4003(b) objection  to an

exemption claim in the  lawsuit proceeds notwithstanding the fact

that there was no colorable legal basis for claiming an exemption
                                                 

in the total amount recovered. 
                      

          The  chapter 7  trustee in  the instant  case responded

                    
                              

     2Unlike the unlimited exemptions for  "disability" and "lost
earnings,"   the   exemption   for   "personal   bodily   injury"
compensation  had been capped at  $7,500.  See  Bankruptcy Code  
                                                        
522(d)(11)(D), 11 U.S.C.    522(d)(11)(D) (subsequently increased
to $15,000).  The  trustee did not contest the  $7,500 exemption.
Thus, $42,500 remains in dispute on appeal.

                                3

that  he had filed no  Rule 4003(b) objection  because Mercer had

claimed  allowable   exemptions   in  the   settlement   proceeds
                            

representing  compensation   for  "disability"  or   lost  future

earnings.  Consequently,  it remained for the bankruptcy court to

determine whether the $42,500 in dispute did, in fact, constitute

compensation for disability and/or lost future earnings.  

          The  bankruptcy court  took  the position  that a  Rule

4003(b) objection is  not required unless the exemption  claim   

as was the  case in Taylor, 112  S. Ct. at 1646     raises a "red
                                    

flag"; that  is, unless the exemption  claim includes unambiguous
                                                                           

language  indicating that  the debtor  is asserting  an exemption

claim which would exceed the maximum statutory allowance.  Mercer
                                                                           

v.  Monzack, 158  B.R.  886,  888  (Bankr.  D.R.I.  1993).    The
                     

bankruptcy court  hypothesized, for example, that  a Rule 4003(b)

objection might  have been  necessary if  Mercer  had listed  the

exemption claim simply as  "Disability" and the exempt  amount as

"100%,"  instead of breaking  down the settlement  fund into four

alternative components.  But since the Mercer exemption claim was

framed in  four alternative parts, each  asserting facially valid

statutory exemptions under section 522(d),  see supra note 1, the
                                                               

bankruptcy  court   concluded  that  it  raised   no  "red  flag"

sufficient to trigger the limitation period in Rule 4003(b).

          The bankruptcy  court therefore  ruled that  Taylor did
                                                                       

not preclude  its assertion of jurisdiction  to determine whether

the  settlement fund represented  compensation for  disability or

lost future  earnings.  Mercer, 158  B.R. at 888.   It then found
                                        

                                4

that the settlement fund  included no compensation for disability

or  lost future  earnings.   Id.  at  888-89.   Accordingly,  the
                                          

bankruptcy  court ordered Mercer to  turn over all  but $7,350 to

the  chapter  7   trustee.3    The  district  court  affirmed  on

intermediate  appeal.  Mercer  v. Monzack,  170 B.R.  759 (D.R.I.
                                                   

1994).  

                                II
                                          II

                            DISCUSSION
                                      DISCUSSION
                                                

          Although  in complete agreement with the result reached

below,  we write to illustrate  that Taylor in  no sense suggests
                                                     

that the bankruptcy court is divested of jurisdiction to hear and

determine the issue  presented on appeal:  whether  the "property

of  the estate"  actually  in dispute  was  listed as  exempt  on
                                               

Schedule B-4, thereby triggering the 30-day limitation under Rule

4003(b).    See  Bankruptcy  Code    522(l),  542(a),  11  U.S.C.
                         

  522(l), 542(a); Fed.  R. Bankr.  P. 4003(c).   In  the end,  we

reject Mercer's  implicit assumption that Taylor licenses debtors
                                                          

unilaterally to transform property of the estate into property of

the description appearing on Schedule B-4. 

          We  begin  with  the  procedural mechanism  in  section

522(l):        The debtor  shall  file a  list  of
                                                            
               property that the debtor  claims as
                                                            
               exempt under subsection (b) of this
                               
               section. .  . .  Unless  a party in
               interest   objects,   the  property
                                                            
               claimed as exempt on such a list is
                                                            
                    
                              

     3The  $7,350 figure  reflects certain  other adjustments  to
Mercer's exemption claim not material to the present appeal.  See
                                                                           
supra note 2.
               

                                5

               exempt.
                               

Bankruptcy Code    522(l), 11  U.S.C.   522(l)  (emphasis added).

That is, absent inclusion on "a list of  property that the debtor
                                                                           

claims  as exempt," "property of  the estate" is  not exempted by
                           

operation of law under section 522(l), regardless  whether a Rule

4003(b) objection was filed.  Id.; see, e.g., Seror  v. Kahan (In
                                                                           

re  Kahan), 28 F.3d 79, 81 (9th  Cir. 1994), cert. denied, 115 S.
                                                                   

Ct. 1100  (1995).   Indeed, the 30-day  limitation on  objections

under Rule  4003(b) does not begin to  run until the debtor lists

the "property claimed as exempt."  See Fed. R. Bankr. P. 4003(b).
                                                

          The "property  of the estate" plainly  listed as exempt

in Taylor, 112 S. Ct. at 1647-49    though not of a kind entitled
                                                                           

to exemption under Bankruptcy Code   522(d)    nonetheless became
                      

exempt  by operation  of law,  as explicitly provided  in section

522(l), in the absence of a  timely Rule 4003(b) objection to the

unambiguous exemption claim  in Schedule B-4.  Nothing  in Taylor
                                                                           

intimates that  "property of  the estate"  not plainly  listed in
                                                        

Schedule B-4 nonetheless becomes exempt by operation of law under
                                                 

section 522(l).  See, e.g., Addison v. Reavis, 158 B.R. 53, 59-60
                                                       

(E.D. Va. 1993),  aff'd, 32 F.3d 562  (4th Cir. 1994);  Seror, 28
                                                                       

F.3d at 82;  In re Sherbahn,  170 B.R.  137, 139-40 (Bankr.  N.D.
                                     

Ind.  1994); Ainslie v.  Grablowsky (In re  Grablowsky), 149 B.R.
                                                                

402, 405-06 (Bankr. E.D.  Va. 1993).  Thus,  it remained for  the

bankruptcy  court  to  determine  whether the  "property  of  the

estate"  actually in dispute became exempt by operation of law as

                                6

Mercer maintained, or remained  subject to administration for the

benefit of creditors as the chapter 7 trustee contended.   

          The  threshold  question  is  whether the  property  in

dispute is in fact  the property of the estate  listed as exempt.
                            

In  stark contrast to Taylor,  the bankruptcy court  found    and
                                      

Mercer does not contest on appeal    that no part of the disputed

$42,500  listed  on Schedule  B-4  is either  compensation  for a

disability        522(d)(10)(C)     or  lost  future earnings    

  522(d)(11)(E)       as  distinguished  from   compensation  for

personal  bodily  injury  (the  maximum  $7,500  exemption  under

  522(d)(11)(D) as compensation for personal bodily injury is not

at issue).  Rather,  in a giant interpretive leap  beyond Taylor,
                                                                          

Mercer asks us to assume that the amount in dispute became exempt

by  operation of  law  under section  522(l) notwithstanding  the

uncontested finding  that it is not compensation for a disability
                                             

or lost future earnings.

          True,  Taylor  requires  that  we interpret  and  apply
                                 

section  522(l) and  Bankruptcy Rule  4003(b) according  to their

literal  intendment.    But  section 522(l)  neither  states  nor

implies  that property of the estate becomes property of the kind
                                                                           

the  debtor  describes on  Schedule B-4.    Rather, as  the Court

recognized in Taylor,  112 S. Ct. at  1646, absent a timely  Rule
                              

4003(b)  exemption,  property of  the  estate  plainly listed  on

Schedule   B-4  becomes   exempt  by   operation  of   law  under
                                          

section 522(l) without regard  to whether it  is property of  the
                                                                           

kind entitled to exemption under section 522(d). 
                                    

                                7

          Notwithstanding Mercer's argument  that he intended  to
                                                                       

exempt the  entire settlement  fund, Schedule B-4  plainly listed

discrete  statutory citations  supporting  the various  exemption

claims,  thereby restricting  both  the focus  of the  exemptions

claimed and the description of  the particular right or  interest

in  property  of  the   estate  to  which  the  claims   applied.

Consequently,  pursuant  to its  exclusive  summary jurisdiction,

see, e.g., In re Stumpff, 109  B.R. 1014, 1017 (Bankr. E.D. Okla.
                                  

1989), it remained for the  bankruptcy court to determine whether

the  disputed right  or interest  in property  of the  estate was

listed on Schedule B-4. 

          Neither Taylor,  the Code, nor the  Rules of Bankruptcy
                                  

Procedure require  parties in interest to  interpose Rule 4003(b)

objections to Schedule B-4 exemption claims in  order to preserve

their right  to invoke the summary jurisdiction of the bankruptcy

court to determine whether  property of the estate  became exempt

by  operation of  law.   What  parties  in interest  may not  do,

however, is let  the limitation period for  objections under Rule

4003(b) expire, then enlist  the jurisdiction of the court  in an

effort to  set aside an exemption allowed  by operation of law in

property of  the estate under  section 522(l) simply  because the

property  listed  as exempt  would  not  have  been  entitled  to

exemption  under section 522(d)  but for their  failure to object

pursuant to Rule 4003(b).4 
                    
                              

     4The  Supreme Court  has not  excluded the  possibility that
Bankruptcy  Code   105(a),  11  U.S.C.   105(a),  might enable  a
bankruptcy  court to  set aside  exemptions not  claimed  in good

                                8

                               III
                                         III

                            CONCLUSION
                                      CONCLUSION
                                                

          In  sum, we affirm on  the ground that  the property of

the estate  at issue on  appeal was  neither listed as  exempt on

Schedule  B-4, nor  became  exempt  by  operation  of  law  under

Bankruptcy Code   522(l).  

          The  district  court  judgment is  affirmed;  costs  to
                    The  district  court  judgment is  affirmed;  costs  to
                                                                           

appellee. 
          appellee.
                  

                    
                              

faith.  See Taylor, 112 S. Ct. at 1649.
                            

                                9