Court Opinion

ID: 2963373
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Date Created: 2015-09-21 21:08:56.245444+00
Date Added: 2024-06-11T11:42:40.066896
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USCA1 Opinion

	

          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