Court Opinion

ID: 9691841
Source: CourtListenerOpinion
Date Created: 2023-08-25 15:17:39.487985+00
Date Added: 2024-06-11T18:19:26.419628
License: Public Domain

*112HIGDON, Bankruptcy Judge,
dissenting:
I dissent because I believe that the bankruptcy court entered an order during the Chapter 13 proceeding which, upon conversion of the case to Chapter 7, was res judica-ta as to the matter of the value of the debtors’ homestead exemption in the Chapter 7.
At the time the debtors filed their Chapter 13 petition they claimed a homestead exemption in the partnership property in which Mr. Alderman owned an interest.2 They claimed the value of the exemption as the “maximum allowed” on their Schedule B^f. The Chapter 13 trustee did not object to this exemption under Bankruptcy Rule 4003(b). However, he did object to confirmation of the debtors’ proposed second amended plan, arguing that it did not meet the requirements of 11 U.S.C. § 1325(a)(4) because the debtors could not claim a homestead exemption in property held by a partnership.
The debtors alleged the trustee’s objection was in fact an objection to their homestead exemption and, under Bankruptcy Rule 4003(b), was untimely. The bankruptcy court agreed with the debtors. However, the court had a question of the confirmability of the proposed plan before it. Bankruptcy Code § 1325 authorizes the bankruptcy court to confirm a Chapter 13 plan only if it meets the requirements of that section. Thus, in order to address the issue of confirmation the trial court not only had to rule on the trustee’s objection but also had to place a value on the property claimed exempt for purposes of determining the amount to be distributed to the unsecured creditors which would meet the requirements of § 1325(a)(4). The court recognized this responsibility and acted upon it. In In re Alderman, 150 B.R. 246, 250-51 (Bankr.D.Mont.1993), the court stated: “[T]he debtors ... agree that any amount of Debtors’ interest in the partnership property which is sold in excess of the $40,000 homestead exemption must be turned over to the trustee for distribution to the unsecured creditors.” The court denied confirmation of the second amended plan only because it provided for distribution to secured claims for which no proofs of claim were filed. The debtors then filed a third amended plan. This plan provided for the same distribution to unsecured creditors as approved by the bankruptcy court in the second amended plan and, in addition, contained the following “liquidation analysis”:
The total amount distributed [to unsecured creditors] under paragraphs 2.d. and e. above will be at least $3,922.00, plus, the net return to Debtors over and above their $40,000 homestead exemption in the Aider-man Ranch Partnership will be paid to the Trustee for distribution to unsecured creditors upon sale of the Alderman Ranch and receipt of the funds thereof, which exceeds what would be available to pay unsecured claims if the Debtor’s estate was liquidated under Chapter 7 of the U.S. Bankruptcy code.
The court confirmed this plan without objection.
The majority recognizes and supports the bankruptcy court’s distinction, in the Chapter 7 proceedings, between disallowing an untimely objection to the availability of the exemption and determining the value of an exemption.3 Yet it fails to acknowledge what *113happened, with regard to this distinction, during the Chapter 13.
At the confirmation hearing on the second amended plan the bankruptcy court, contrary to its later position during the Chapter 7, seems to have determined that, because the trustee’s objection to confirmation based on § 1325(a)(4) was in fact an untimely objection to the availability of debtors’ claimed homestead exemption, he had no choice, for purposes of § 1325(a)(4), but to value that exemption at $40,000. But, assuming the validity of the distinction made by the bankruptcy court later in the Chapter 7 and supported by this court, during the Chapter 13 proceedings, despite its ruling that the trustee’s objection was in the nature of an objection to the availability of a homestead exemption and untimely, it was in fact free to value the debtors’ interest in the exemption for purposes of § 1325(a)(4) at $4,880 (12.2% of $40,000). Rather, it determined the value of the debtors’ homestead exemption at $40,000 and, by confirming the plan which incorporated that value, entered an order which is res judicata on that issue in the Chapter 7.4
The majority seems to rest its holding primarily on In re Winchester, 46 B.R. 492 (9th Cir. BAP 1984). That case dictates that in a case converted from Chapter 13 to Chapter 7 the validity of exemptions in the Chapter 7 are to be determined as of the date of the conversion. The Winchesters had had a change of circumstances during the Chapter 13 proceeding which would result in a right to the claimed exemption if the petition date controlled and no right if the conversion date controlled. The bankruptcy court made no rulings during the Chapter 13 proceedings addressing the debtors’ homestead exemption. The issue arose for the first time after the case was converted. Therefore the court did not have to address potential application of the doctrine of res judicata.
Under our facts, upon conversion the debtors made no change to either their Schedule C or their Schedule B-4 other than to change the property from the real estate itself to the proceeds from its sale. This change did not affect their right to the same exemption, which had not changed statutorily and which they continued to claim, using identical language. Montana law placed a monetary cap on the amount of potential exemption the debtors could claim. Consequently, the value of their exemption could not be changed by market forces during the case. Most importantly, the parties placed the value of the exemption at issue during the Chapter 13 proceedings and the court entered a ruling on that issue. Given these facts Winchester should not be applied to allow the Chapter 7 trustee to revisit the valuation issue.
The doctrine of res judicata bars relit-igation of a cause of action that was previously decided in a valid and final judgment between the same parties or their privies. Lawlor v. National Screen Service Corp., 349 U.S. 322, 75 S.Ct. 865, 99 L.Ed. 1122 (1955). The doctrine applies to decisions of bankruptcy courts. Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966). There are three elements to the doctrine, all of which must be met, before it applies. First, there must be a valid and final judg*114ment. United States v. Swift & Co., 286 U.S. 106, 52 S.Ct. 460, 76 L.Ed. 999 (1932). Second, there must be identity of, or privity between, the parties. A privy is one who is so identified in interest with another that he represents the same legal right. U.S. v. California Bridge & Construction Co., 245 U.S. 337, 38 S.Ct. 91, 62 L.Ed. 332 (1917). Third, the doctrine is limited in application to identical claims. “The principal test for determining whether the causes of action are the same is whether the primary right and duty are the same in each ease.” I.A. Durbin, Inc. v. Jefferson National Bank, 793 F.2d 1541, 1549 (11th Cir.1986).
In this case there is an identity of interest between the Chapter 13 trustee and the Chapter 7 trustee. They both represented the same rights. The only purpose of both trustees’ activities in this case was to maximize the amount to be distributed to the unsecured creditors by requesting the court to determine the value of the exemption available to the debtors. There was, under our facts, privity between the Chapter 7 trustee and the Chapter 13 trustee.5 In addition, in order to confirm the debtors’ Chapter 13 plan the court necessarily addressed the issue of the value of their claimed homestead exemption, the identical issue presented in the Chapter 7 trustee’s motion for valuation of the claimed exemption. Finally, the order confirming the debtors’ Chapter 13 plan constituted a final judgment on the issue of the value of the debtors’ homestead exemption. All of the requisite elements are present, the doctrine of res judicata must be applied. That doctrine bars the Chapter 7 court from reexamining the value of the debtors’ claimed exemption. I would reverse the decision of the bankruptcy court and remand the case for entry of an order placing the value of the debtors’ Chapter 7 homestead exemption at $40,000.

. The debtors’ schedules stated that Mr. Aider-man held a 12.2% interest in the property. However, when the properly was sold the escrow company Usted Mr. Alderman's interest at 14.54% and disbursed funds to Mr. Alderman based on that percentage of ownership.

. There will not always be a necessity to distinguish between objecting to the availability of the exemption itself and requesting the court to determine the value of any exemption. The necessity will rest on the language of the statute creating the exemption. It may state that the debtor may exempt one vehicle. The nature of this exemption does not generate a valuation issue. On the other hand, the statute may allow the debtor an exemption of $1,400 for one vehicle. As the exempt portion of the asset is stated in a given dollar amount the court may be required to place a value on the vehicle. Or, as in this case, the applicable law may allow an exemption with a dollar ceiling and authorize the debtor to claim his proportional share of that exempt amount up to the ceiling. The court will necessarily have to determine the value of the exempt portion of the asset. The distinction between the availability of the exemption itself and a request for valuation of the exempt property is supported by In re Hyman, 123 B.R. 342 (9th Cir. BAP 1991), aff'd, 967 F.2d 1316 (9th Cir.1992) which held that only an objection as to the former must be made *113within the 30 day period prescribed by Bankruptcy Rule 4003(b).

. The bankruptcy rules suggest that the bankruptcy court should not apply the time limits of Bankruptcy Rule 4003(b) to any objection to confirmation the Chapter 13 trustee may make which raises an issue under 11 U.S.C. § 1325(a)(4). Section 1302(b)(2) requires the trustee to appear at the confirmation hearing. He may be heard on any issue involving plan confirmation. Bankruptcy Rule 3015(f), which addresses the filing of objections to the confirmation of Chapter 13 plans, places no time limits on such filings other than that they must be served pursuant to Bankruptcy Rule 9014 with reasonable notice and opportunity for a hearing.
Interestingly, in dicta the Winchester court explains why the bankruptcy court in our case necessarily had to determine the value of the Aldermans' exemption during the Chapter 13 despite its holding overruling the trustee’s objection to confirmation as an untimely objection to claimed exemption. It stated: "The 'exemptions’ claimed by the debtors upon the filing of their Chapter 13 petition are not really exemptions at all. They are merely statements used to show what the debtors would claim as exempt if their case were a liquidation case_ These 'exemptions’ serve only one purpose: they allow the bankruptcy court to make an informed decision regarding the liquidation comparison required by 11 U.S.C. § 1325(a)(4)." Winchester, 46 B.R. at 494.

. The debtors cite In re Magallanes, 96 B.R. 253 (9th Cir. BAP 1988) in support of their argument that the Chapter 13 court’s determination of the value of their homestead exemption is res judica-ta on that issue and constitutes an absolute bar to a subsequent action involving the same cause of action. The majority rejects Magallanes because it involves a case which was converted not from Chapter 13 to 7 but from Chapter 11 to 7. Applying Winchester it holds that in the former circumstance, unlike the latter, the Chapter 7 trustee has the opportunity to have the court revisit exemption issues.
I agree because in converted Chapter 11 cases the validity of exemptions is determined only as of the petition date, the Magallanes holding is of limited value here. However, it does stand for the proposition that upon conversion the doctrine of res judicata, or claims preclusion, may be applicable despite the fact that the parties raising the litigated issue preconversion may not be identical to the parties raising the issue postconversion. In that case unsecured creditors objected to the exemption in the Chapter 11 and the trustee objected to the exemptions in the Chapter 7. Nonetheless, the court concluded that the doctrine of res judicata did apply, apparently concluding that objecting creditors and the Chapter 7 trustee were so identified in interest that there was privity between them.