Court Opinion

ID: 4459082
Source: CourtListenerOpinion
Date Created: 2019-11-26 17:00:21.510544+00
Date Added: 2024-06-11T14:52:27.322207
License: Public Domain

United States Court of Appeals
                          For the Eighth Circuit
                      ___________________________

                              No. 18-3045
                      ___________________________

 In re: Johnny M. Belew, also known as John Belew, formerly doing business as
                       Belew and Bell, Attorneys at Law

                             lllllllllllllllllllllDebtor

                           ------------------------------

                                 Bianca Rucker

                           lllllllllllllllllllllAppellant

                                         v.

                               Johnny M. Belew

                            lllllllllllllllllllllAppellee
                                  ____________

                  Appeal from the United States Bankruptcy
                    Appellate Panel for the Eighth Circuit
                               ____________

                         Submitted: September 24, 2019
                           Filed: November 26, 2019
                                 ____________

Before KELLY, MELLOY, and STRAS, Circuit Judges.
                           ____________

MELLOY, Circuit Judge.
        Chapter 7 debtor Johnny Belew (“Debtor”) initially failed to disclose an
account in his wife’s name that previously had received direct deposits of his social
security checks. When this account came to light, Debtor amended his schedules to
list the account and claim its contents, $2.30, as exempt. The Trustee did not object.

       After learning of the account, however, the Trustee conducted further
investigation and discovered Debtor had withdrawn over $30,000 from a different
account more than one year prior to entering bankruptcy and had placed that cash in
a home safe. When this additional information came to light, Debtor again amended
his schedules, identifying several assets. He included a possible interest in the
$30,000 cash and claimed that interest as exempt. The Trustee objected to this
amendment, alleging Debtor had acted in bad faith by initially failing to disclose the
cash in the home safe. The bankruptcy court1 overruled the objection, holding that
the Bankruptcy Code did not grant the court authority to bar an amendment to
claimed exemptions based on bad faith. The BAP affirmed, and the Trustee appeals.

       In Kaelin v. Bassett, our court stated: “The bankruptcy court has the discretion
to deny the amendment of exemptions if the amendment is proposed in bad faith or
would prejudice creditors.” 308 F.3d 885, 888 (8th Cir. 2002). In Law v. Siegel,
however, the Supreme Court clarified that bankruptcy courts could use neither
statutory nor inherent sources of broad, general authority to “contravene specific
statutory provisions.” 571 U.S. 415, 421 (2014). We conclude that Law abrogates
Kaelin and precludes the denial of an amendment to a schedule of claimed
exemptions based on a debtor’s bad faith.

      In Law, a bankruptcy court assessed a surcharge for an administrative expense

      1
        The Honorable Ben T. Barry, Chief Judge, United States Bankruptcy Court
for the Western District of Arkansas.

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against a debtor’s homestead exemption based on that debtor’s bad faith. The
Supreme Court reversed, citing the express statutory provisions protecting exempt
property from administrative expenses, 11 U.S.C. § 522(k), and permitting the debtor
to claim exemptions under state law, 11 U.S.C. § 522(b)(3)(A). Law, 571 U.S. at
418. The Court held that neither the bankruptcy court’s general statutory authority
to issue necessary orders, 11 U.S.C. § 105(a), nor its inherent power to issue
sanctions could be used to contravene the express statutory provisions authorizing
exemptions, Law, 571 U.S. at 421 (citing Marrama v. Citizens Bank of Mass., 549
U.S. 365, 375–76 (2007) (addressing the “inherent power . . . to sanction ‘abusive
litigation practices’”)). The Court emphasized that debtors, rather than bankruptcy
courts, “may exempt,” 11 U.S.C. § 522(b)(1), certain property and that the bankruptcy
courts “may not refuse to honor the exemption absent a valid statutory basis for doing
so,” Law, 571 U.S. at 424.

       The Court based its conclusion on two general principles: “the axiom that a
statute’s general permission to take actions of a certain type must yield to a specific
prohibition found elsewhere,” id. at 421, and the longstanding requirement that
“whatever equitable powers remain in the bankruptcy courts must and can only be
exercised within the confines of the Bankruptcy Code,” id. (quotation omitted). The
Court also emphasized that § 522 “sets forth a number of carefully calibrated
exceptions and limitations, some of which relate to the debtor’s misconduct.” Id. at
424. Because bad faith is not listed among the “carefully calibrated exceptions” in
§ 522, the Court concluded general powers could not be used to recognize a bad faith
exception not listed in the specific, detailed provisions of that section. Id. at 425
(“[F]ederal law provides no authority for bankruptcy courts to deny an exemption on
a ground not specified in the Code.”). The Court also noted that many other tools
were available to bankruptcy courts to address bad faith. Id. at 427 (“Our decision
today does not denude bankruptcy courts of the essential authority to respond to
debtor misconduct with meaningful sanctions.” (citation and quotation marks
omitted)).

                                         -3-
       The Trustee argues Law does not control in the present case because Law
addressed the application of an equitable surcharge and not the amendment of
claimed exemptions. We do not find this distinction meaningful. Importantly, in
rejecting an argument from the trustee in Law, the Court equated the act of barring
a debtor from amending an exemption schedule to the act of denying an exemption.
Id. at 425 (“disallow[ing] an exemption” is “much the same thing” as “bar[ring] a
debtor from amending his schedules to claim an exemption”). Whether viewed as a
holding or as strong dicta, we conclude this expansive statement by the Court requires
us to recognize that Law abrogates Kaelin. See In re Pre-Filled Propane Tank
Antitrust Litig., 860 F.3d 1059, 1064 (8th Cir. 2017) (stating that appellate courts
should give “deference and respect” to strong dicta from the Supreme Court);
Ellmann v. Baker (In re Baker), 791 F.3d 677, 682 (6th Cir. 2015) (“[Law] prohibits
the bankruptcy court from disallowing the debtors’ claimed exemptions because of
their alleged bad faith and fraudulent conduct.”); see also Clabaugh v. Grant (In re
Grant), 658 F. App’x 411, 414–15 (10th Cir. 2016) (applying Law in the context of
a lien avoidance motion and stating, “the bankruptcy court could not exercise its
equitable powers to deny [a] § 522(f)(1)(A) avoidance motion because there is no
statutory basis to do so”).

      The bankruptcy court correctly overruled the Trustee’s objection. We affirm.
                     ______________________________

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