JOAN N. FEENEY, Bankruptcy Judge.
The matters before the Court are 1) the Amended Objection to Debtor's Claim of Exemption (the "Amended Objection to Exemption") filed by Lynne F. Riley, Esq., the Chapter 7 Trustee (the "Trustee"); 2) the Opposition to the Amended Objection filed by John G. Soares (the "Debtor"); 3) the Debtor's Motion for Reconsideration of the denial of a "Motion for a Determination that the Chapter 7 Trustee Is Procedurally Time-Barred under Bankruptcy Rule 4003(b)(1) from Objecting to Debtor's 11 U.S.C. § 522(d)(11)(A) Exemption Claim in a Pending Lawsuit against Joseph Pereira" (the "Motion for Determination"); and 4) the Chapter 7 Trustee's Objection to the Motion for Reconsideration. The Court conducted a hearing on October 19, 2011 at which time it directed the parties to file an Agreed Statement of Facts and briefs. The material facts necessary to decide the matters are not in dispute. The Court makes the following findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052.
Pursuant to their Statement of Agreed upon Facts, the parties stipulated to the following pertinent facts. The Debtor filed a Chapter 7 petition on July 30, 2009, together with Schedules of Assets and Liabilities, a Statement of Financial Affairs and other required documents. On Schedule B—Personal Property, the Debtor listed the following asset:
On Schedule C—Property Claimed as Exempt, the Debtor claimed an exemption in a lawsuit against Joseph Pereira ("Pereira") pursuant to 11 U.S.C. § 522(d)(5) in the amount of $11,000. In addition, he claimed an exemption pursuant to 11 U.S.C. § 522(d)(11)(A) in an unknown amount.
Although the Debtor did not provide Trustee Shamban with documents concerning a criminal matter pending against Pereira, he obliquely referenced one through his claimed exemption pursuant to 11 U.S.C. § 522(d)(11)(A). Additionally, Attorney Prentiss stated at the § 341 Meeting that "There's a pending indictment against this [sic]." At the conclusion of the § 341 Meeting, Trustee Shamban indicated that he might "have more [questions] in the future about this lawsuit," adding "I'll get in touch with Attorney Prentiss and he'll get in touch with you."
Trustee Shamban did not continue the § 341 Meeting to a specific date and time. On November 17, 2009, Trustee Shamban caused the filing of the following docket entry: "Meeting of Creditors Held and Examination of Debtor on 9/15/2009." Moreover, Trustee Shamban did not ask the Debtor to provide him with any documents pertaining to either the civil or criminal matter pending against Pereira.
On November 27, 2009, the Court entered an order of discharge pursuant to which the Debtor was discharged of all dischargeable debts.
On January 6, 2010 Trustee Shamban filed an Application of Trustee to Employ Stephen E. Shamban Law Offices, P.C. as Counsel for a variety of the purposes, including analyzing claims, transfers and exemptions. The Court granted the Application on January 11, 2010. On November 18, 2010, Trustee Shamban died unexpectedly. Between the allowance of Trustee Shamban's Application and his untimely passing, the docket does not reflect any activity in the case.
On December 10, 2010, Lynne F. Rilely, Esq. accepted appointment as successor trustee (the "Trustee"). On May 11, 2011, she filed an Application for Order Authorizing Chapter 7 Trustee to Employ Counsel pursuant to which she sought authority to employ her law firm as counsel. The Court granted the Application on May 12, 2011.
On July 5, 2011, the Debtor filed his Motion for Determination pursuant to which he sought a determination that the Chapter 7 Trustee was precluded from objecting to his claimed exemptions. Citing Taylor v. Freeland & Kronz, 503 U.S. 638,
The Trustee filed an Opposition to the Motion to Determine. On July 25, 2011, the Court conducted a hearing and denied the Motion to Determine in part because there was no transcript from the § 341 Meeting at that time.
On August 4, 2011, almost two years after the § 341 Meeting, the Trustee filed an Objection to the Debtor's claimed exemptions in which she alleged that the Debtor's claimed exemption in the lawsuits were ambiguous. The Debtor filed his Opposition to the Trustees Objection on October 6, 2011 along with a motion to file his opposition late, which was allowed by the Court.
On October 18, 2011, the Trustee filed an Amended Objection to Exemption in which she alleged, inter alia, that an exemption under 11 U.S.C. § 522(d)(11)(A) only applies to compensation for actual bodily injury, not to compensation for pecuniary loss. The Debtor filed a Supplemental Opposition to the Amended Objection to Exemption. On October 19, 2011, the Court conducted a hearing at which time it took the matter under advisement.
On December 15, 2011, the Debtor provided the Trustee with documents relating to the criminal proceedings against Pereira.
The parties agreed that, on February 9, 2009, prior to the commencement of criminal proceedings, the Debtor initiated a civil lawsuit against Pereira for Conversion (Count I); Fraud/Deceit (Count II); Breach of Fiduciary Relationship (Count III); Negligent Misrepresentation (Count IV); Intentional Misrepresentation (Count V), Unjust Enrichment (Count VI); and Breach of Contract (Count VII). Less than five months later, on June 24, 2009, a 13 count criminal indictment was returned against Pereira. On September 30, 2010, Pereira pled guilty to all thirteen counts and was sentenced to MCI Cedar Junction for a term of not more than five years nor less than three years for offense 6. With respect to offense 12 which related to his criminal conduct involving the Debtor, Pereira was sentenced to probation for a term of five years concurrent with the probation imposed on prior counts of the indictment with restitution. On September 30, 2010 a docket notation was entered stating—restitution hearing to be scheduled. As of the filing of the Statement of Agreed upon Facts, no restitution hearing had been held, and to date, it does not appear that there has been an award of restitution to the Debtor or any other victims in the criminal matter.
In her original Objection to Exemption, the Trustee complained that the Debtor
The Trustee subsequently amended her original Objection to Exemption "for the purpose of objecting to the Debtor's claim of exemption in the Restitution Award to the extent that the Debtor seeks to exempt restitution payments that are not compensation for actual bodily injury." She argued that the exemption under § 522(d)(11)(A) only applies to compensation "for actual bodily injury, not to compensation for pecuniary loss," citing In re Seymour, 285 B.R. 57, 58-59 (Bankr. N.D.Ga.2002) (citing H. Rep. No. 95-595, 95th Cong., 1st Sess. (1977), U.S.Code Cong. & Admin. News 1977, pp. 5963, 6318 ("This provision in subparagraph (D)(11) is designed to cover payments in compensation of actual bodily injury, such as the loss of a limb, and is not intended to include the attendant costs that accompany such a loss"); In re Herb, 412 B.R. 688 (Bankr.M.D.Pa.2009); and In re Carelock, No. 05-51431-JDW, 2006 WL 3708688 (Bankr.S.D.Ga. Jan. 13, 2006)).
The Trustee maintains that her Amended Objection to Exemptions is not time barred under Fed. R. Bankr.P. 4003(b) and the decision of the United States Supreme Court in Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). Citing Schwab v. Reilly, 130 S.Ct. at 2663, she argues:
The Trustee adds:
The Trustee asserts that the Debtor's Schedule C is ambiguous and establishes that the Debtor intended to claim an exemption in the amount of $11,000 in the civil matter only. Because the Debtor did not timely disclose the pending criminal matter, she contends that the Amended Objection to Claim is timely under the case-by-case approach adopted in Newman v. White (In re Newman), 428 B.R. 257 (1st Cir. BAP 2010).
The Debtor contends that the Trustee's objection to his claimed exemption under 11 U.S.C. § 522(d)(11)(A) does not apply to any recovery in the pending civil lawsuit against Pereira. He maintains that "a recovery in the civil lawsuit will offset and reduce any criminal reparation ordered in the Criminal suit against Mr. Pereira thus impairing his right to receive an award under a crime victims reparation law." He cites People v. Marone, 891 N.Y.S.2d 509, 68 A.D.3d 1443 (2009) (civil settlement agreement did not operate to forgive defendant's obligation to pay criminal restitution amount that remained unsatisfied after the civil settlement), and urges the Court to apply its reasoning to Mass. Gen. Laws 258B, § 3(o). He also requests the Court to find that his exemption under 11 U.S.C. § 522(d)(11)(A) applies to any recovery in the civil action.
The Debtor also contends that the Trustee's Amended Objection to Exemption is untimely. He relies upon the Supreme Court's decision in Taylor, but he also maintains that applying the factors set forth in In re Newman, the Trustee's Objection to Exemption produces the same result. He adds that there is no requirement under § 522(d)(11)(A) that a debtor is only entitled to exempt compensation for actual bodily injury, particularly as § 522(d)(11)(A) refers only to "a crime victims reparation law." Citing Commonwealth v. Rotonda, 434 Mass. 211, 221, 747 N.E.2d 1199 (2001), he argues that under Mass. Gen. Laws ch. 258B, § 3(o) judges can impose restitution to make victims whole for financial injuries.
Section 522(l) provides:
11 U.S.C. § 522(l). Fed. R. Bankr.P. 4003, in pertinent part, provides:
Fed. R. Bankr.P. 4003(b), (c).
The Supreme Court has construed the language of 11 U.S.C. § 522(l). In Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), the debtor, Emily Davis, filed a bankruptcy petition while she was pursuing an employment discrimination claim against TWA in the state courts. The petitioner, Robert J. Taylor, was appointed the trustee; the respondents were Wendell G. Freeland, Richard F. Kronz, and their law firm, who represented Davis in the discrimination suit. On a schedule filed with the Bankruptcy Court, Davis claimed as exempt property the money that she expected to win in her discrimination suit against TWA, although she did not have a right to exempt more than a small portion of the proceeds under either state law or the federal exemptions specified in § 522(d). She described this property as "Proceeds from lawsuit-[Davis] v. TWA" and "Claim for lost wages" and listed its value as "unknown." The trustee initially did not object to her claim of exemption believing it had no value. When the debtor eventually settled with TWA for over $110,000 and paid a significant portion of the proceeds to the respondents, the trustee demanded turnover from the respondents. The respondents argued, however, that they could keep their fees because the debtor claimed the proceeds as exempt and, in the absence of objection, the proceeds were no longer property of the debtor's bankruptcy estate.
The Supreme Court rejected the trustee's argument that § 522(l) requires debtors to file claims for exemptions in good faith. It held:
503 U.S. at 643-44, 112 S.Ct. 1644.
In Schwab v. Reilly, ___ U.S. ___, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010), the Supreme Court revisited § 522(l). It framed the issue before it as follows;
In Schwab, the debtor, utilizing the federal exemptions available under 11 U.S.C. § 522(b)(2), claimed two exempt interests in equipment pursuant to different sections of the Bankruptcy Code. She claimed a "tool[s] of the trade" exemption of $1,850 in the equipment under § 522(d)(6), which permits a debtor to exempt his "aggregate interest, not to exceed $1,850 in value, in any implements, professional books, or tools, of [his] trade." Additionally, in columns two and three of Schedule C she claimed a miscellaneous exemption of $8,868 in the equipment under § 522(d)(5), which, at the time she filed for bankruptcy, permitted a debtor to take a "wildcard" exemption equal to the "debtor's aggregate interest in any property, not to exceed" $10,225 "in value." Schwab v. Reilly, 130 S.Ct. at 2657. According to the Supreme Court, the total value of the claimed exemptions equaled the value the debtor ascribed to the property on Schedule B and in column four of Schedule C as the equipment's estimated market value. Id. at 2658.
Schwab, the Chapter 7 trustee did not object to the debtor's claimed exemptions because the dollar value assigned to each exemption in column three fell within the limits set forth in 11 U.S.C. § 522(d). Because his appraisal revealed that the equipment might have a higher value than that ascribed to the equipment by the debtor, i.e., $17,200 rather than $10,718, he
The Supreme Court held:
Id. at 2663-64 (footnote omitted, citations omitted).
Bankruptcy Judge Henry J. Boroff recently construed the Supreme Court decisions in Taylor and Schwab in In re Hall, 453 B.R. 22 (Bankr.D.Mass.2011). In that case, the debtor claimed the so-called "wild card" exemption under 11 U.S.C. § 522(d)(5) in a wrongful termination action against a former employer. She listed the value of an exemption in an "unknown" amount and also listed the current value of the asset in an "unknown" amount. The Chapter 7 trustee did not expressly conclude or continue the § 341 meeting of creditors, and he did not object to the debtor's claimed exemption. After 30 days from the § 341 meeting and after the Massachusetts Commission against Discrimination entered a probable cause finding, the Chapter 7 trustee applied to employ special counsel to pursue the debtor's wrongful termination claim. The debtor failed to object to the application, but subsequently moved for reconsideration. According to the court, the debtor's primary arguments were that she had exempted the wrongful termination claim in full and that it was fruitless to allow special counsel to pursue the claim because it was no longer property of the estate pursuant to § 522(l). In re Hall, 453 B.R. at 25. The court observed that the debtor likened her case to Taylor because the trustee failed to object to her listing the value of a claimed exemption as "unknown," a circumstance which, in her view, resulted in the exemption of the entire asset and its removal from the bankruptcy estate.
In Hall, the trustee argued that the exemption claimed by the debtor was distinguishable from the exemption claimed by the debtor in Taylor. The trustee
Judge Boroff observed that many cases discussing Taylor note the underlying assumption in the decision that the full proceeds were claimed as exempt, see In re Shelby, 232 B.R. 746, 753 (Bankr.W.D.Mo. 1999); In re DeSoto, 181 B.R. 704, 707 (Bankr.D.Conn.1995); Addison v. Reavis (In re Reavis), 158 B.R. 53, 59 (1993), aff'd sub. nom., Ainslie v. Grablowsky (In re Grablowsky), 32 F.3d 562, 1994 WL 410995 (4th Cir.1994). He stated:
Hall, 453 B.R. at 27-28. Judge Boroff determined that he was required to determine, in the first place, what the debtor claimed as exempt and that to make that determination he had to focus on the first three columns of Schedule C. Id. at 28 (citing Schwab v. Reilly, 130 S.Ct. at 2663). He emphasized that "the Debtor did not simply claim all the proceeds of the Claim [the wrongful termination claim] in an `unknown' amount as exempt on her Schedule C. Instead, she specified the Code provision governing the exemption as § 522(d)(5). By `plainly list[ing] [a] discrete statutory citatio[n] supporting the. . . exemption clai[m],' the Debtor `restrict[ed]. . . the focus of the exemptio[n] claimed. . . .'" In re Hall, 453 B.R. at 28 (citing Mercer v. Monzack, 53 F.3d 1, 3 (1st Cir.1995)). Judge Boroff concluded:
Applying the principles set forth in the Supreme Court and First Circuit cases, the Court concludes that the Debtor's exemption claim pertaining to "Lawsuit pending Bristol County Superior Court . . ." is limited to $11,000. As in Schwab v. Reilly and In re Hall, the Trustee did not need to object to that claimed exemption under § 522(d)(5) within the time periods set forth in Fed. R. Bankr.P. 4003, because the claimed exemption did not exceed the amount of the available exemption. In other words, the Trustee's Amended Objection to Exemption is not untimely with respect to the Debtor's claimed exemption of the proceeds of the civil action in the amount of $11,000 pursuant to 11 U.S.C. § 522(d)(5).
Starting with the question asked by Judge Boroff, i.e., "What did the Debtor claim as exempt?" see In re Hall, 453 B.R. at 28, the Court finds that the Debtor claimed an exemption in any recovery he might obtain in the civil lawsuit against Pereira pursuant to § 522(d)(5). As in Schwab and Hall that exemption is limited by the statutorily imposed monetary cap. Moreover, as in Schwab and Hall, the Court concludes that Rule 4003(b) does not bar the Chapter 7 Trustee from objecting to the Debtor's exemption in any proceeds from the civil suit to the extent the "unknown" current value exceeds the value of his claimed exemption of $11,000 pursuant to 11 U.S.C. § 522(d)(5).
The Debtor's claimed exemption of an "award under a crime victim's reparation law" pursuant to 11 U.S.C. § 522(d)(11)(A) is more problematic, as the Debtor in column one of Schedule C did not describe the indictment or pending criminal action, which had been initiated just five weeks before the Debtor commenced his Chapter 7 case. He merely referenced § 522(d)(11)(A) in column two and listed both the value of the claimed exemption and the current value of the property without deducting the exemption as "Unknown." As noted above, however, Attorney Prentiss disclosed to Trustee Shamban that Pereira had been indicted on a number of criminal charges, but Trustee Shamban never followed-up with the Debtor or Attorney Prentiss with questions about the criminal action. In addition, the Debtor never amended Schedule C to describe the potential receipt of restitution in the criminal proceeding against Pereira. Trustee Shamban neither concluded nor continued the § 341 Meeting. Indeed, between September 15, 2009 and January 6, 2010, the docket does not reflect anything but routine activity in the case. On January 6, 2010, Trustee Shamban filed an application to employ his law offices as counsel for a variety of purposes, including "analyzing exemptions and objections thereto." Following the entry of an order granting the Application, no further activity occurred in the case until Lynne Riley, Esq. was appointed successor trustee due to Trustee Shamban's unexpected passing.
In In re Newman, 428 B.R. 257 (1st Cir. BAP 2010), the bankruptcy appellate panel discussed three approaches to determining when a trustee is procedurally time-barred from objecting to an exemption under Bankruptcy Rule 4003(b)(1). It identified "the `bright-line' approach, the `case-by-case' approach, and the `debtor's burden' approach." 428 B.R. at 262. The bankruptcy appellate panel rejected the debtor's burden approach but saw no need to adopt or reject either the bright-line approach or the case-by-case approach. Id. at 264. It described that the bright-line approach as follows: "Under the `bright-line' approach, a meeting continued
Utilizing the bright-line approach, the Chapter 7 Trustee's Amended Objection to Exemption is unquestionably untimely as Trustee Shamban did not continue the § 341 Meeting to a date certain. Under the case-by-case approach, the Court also concludes the Trustee's Amended Objection to Exemption in any restitution proceeds is time-barred. The Debtor's case was filed on July 30, 2009. Almost two years later, the Debtor filed the Motion for a Determination that the Chapter 7 Trustee Is Procedurally Time-Barred under Rule 4003(b)(1) from Objecting to Debtor's 11 U.S.C. § 522(d)(11)(A) Exemption Claim in Pending Lawsuit against Joseph Pereira. Although the Court denied that Motion on July 25, 2011, as the transcript of the § 341 Meeting was not available, the Trustee did not file her original Objection to Exemption until August 4, 2011 almost two years from the originally scheduled § 341 Meeting of creditors.
Turning to the case-by-case approach, the Court finds that the Debtor's bankruptcy estate is not complex. Excluding the civil and criminal actions against Pereira from consideration, the Debtor did not own any non-exempt assets. The Debtor cooperated with Trustee Shamban at the § 341 Meeting and there was no evidence that he did not cooperate with the successor Trustee. Finally, the transcript from the § 341 Meeting establishes that Trustee Shamban neither concluded nor continued the meeting to a date certain. Additionally he did not seek an extension of time within which to object to the Debtor's exemptions under either § 522(d)(5) or § 522(d)(11)(A) pursuant to Fed. R. Bankr.P. 4003(b)(1) and took no timely action to object to it. He did not timely or vigorously pursue an investigation of the criminal matter or whether the Debtor's claimed exemption under § 522(d)(11)(A) was well-founded. Thus, applying the
Alternatively, even if the Court considers the merits of the Trustee's Amended Objection to Exemption, the Court finds that the Trustee failed to sustain her burden that the Debtor is not entitled to an award under § 522(d)(11)(A), which imposes no monetary limit on the amount of an award a debtor may exempt under a crime victim's reparation law. The Debtor argues that Mass. Gen. Laws ch. 258B § 3(o) is the applicable crime victim's reparation law and the Court agrees. See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (bankruptcy courts should look to state law to determine property interests in the assets of a bankruptcy estate because there was no federal "property law"). Section 3(o) provides in pertinent part the following:
Mass. Gen. Laws ch. 258B, § 3(o). In Commonwealth v. Fazal, 81 Mass.App.Ct. 1110, 2012 WL 247711 (2011), a case involving larceny over $250 and a violation of Mass. Gen. Laws ch. 266, § 30(1), the same criminal statute pursuant to which Pereira was criminally charged, the court stated:
Fazal, 81 Mass.App.Ct. at *1. Based upon the applicable law, the Court finds that, if and when, Pereira is required to pay restitution, such an award would fall within the purview and plain language of § 522(d)(11)(A).
The Trustee argues that this Court should adopt the reasoning of the court in In re Seymour, 285 B.R. 57 (Bankr. N.D.Ga.2002). In that case, the court observed that "[t]he grouping of these particular exemptions [under § 522(d)(11)] suggests that the common thread among the exemptions is not to protect repayments made to compensate a debtor for a direct pecuniary loss or other damage to property" and that they "are all intended to protect a debtor's right to payments that would either replace a loss of the debtor's future source of support or would serve to compensate the debtor for an injury to his person." Id. at 59-60.
Based upon the foregoing, the Court shall enter an order sustaining the Trustee's Amended Objection to Exemption in part and overruling the Amended Objection to Exemption in part. The Court rules that the Debtor is entitled to an exemption in an amount capped by § 522(d)(5) in the civil action against Pereira and an exemption in any award he may receive pursuant to § 522(d)(11)(A) and the applicable crime victim's reparation law, namely Mass. Gen. Laws ch. 258B, § 3(o). The Debtor's Motion for Reconsideration of the Motion for Determination and the Trustee's Objection to the Motion for Reconsideration are moot.
434 Mass. at 221, 747 N.E.2d 1199 (footnote omitted). Section 3(o) of Mass. Gen. Laws ch. 258B affords victims the right to request "that restitution be an element of the final disposition of a case and to obtain assistance from the prosecutor in the documentation of the victim's losses."
In re Newman, 428 B.R. at 262-63.
285 B.R. at 58-60.