TERRY L. MYERS, CHIEF U. S. BANKRUPTCY JUDGE.
Three matters are currently before the Court. The chapter 13 trustee, Kathleen McCallister ("Trustee"), seeks to dismiss this case under § 1307(c) alleging "unreasonable delay." See Doc. No. 30.
Debtor has faced a number of financial challenges. These include the failure of her ex-husband, Neil Michel ("Michel"), who now resides in California, to pay court-ordered child support. In addition, though she is employed, Debtor has coped with a number of serious and expensive medical issues resulting from repeated knee surgeries.
Debtor's schedule I, filed in March 2016, establishes she is employed and has a monthly take home pay of $2,055.56. Ex. 200 at 36-37.
In 2010, Debtor had her first knee surgery to deal with a torn meniscus. She reinjured the same knee and had a second surgery. The second surgery was not successful, and in October 2015 she had a total knee replacement. These surgeries were conducted in Boise. But Debtor continued to have significant problems with her knee and ultimately consulted doctors in Salt Lake City and had a fourth surgery there in August 2016. That doctor determined there were issues with hyperextension, but also that the implants inserted in the prior knee replacement were misaligned.
These medical issues have had a direct and significant financial effect. Debtor's budget reflects a $314.00/month medical expense. This results from prescriptions to deal with the knee pain and also chronic migraines. She also incurs, every three months, the cost of a motel and out-of-pocket expenses for trips to Utah for medical care.
Debtor is a below-median income debtor, and she proposed a 36-month chapter 13 plan with monthly payments of $222.00. Ex. 201.
An audit report from the State of California indicates the total amount of past due child support owed by Michel as of May 2016 is $76,877.65. Ex. 205. Several aspects of that support obligation are at issue.
First, the support was ordered in regard to two of Debtor's three children.
Second, Michel's payments on the child support obligation have been erratic. The audit report, Ex. 205, shows only those payments received from May 2007 through May 2016. Though payments were made regularly during certain periods, that was not always the case. Debtor indicated the cessation or reduction in amounts of payments was due to Michel's loss of employment.
At the time of filing, Debtor indicated the support payments regularly received totaled $290.00 per month. Ex. 200 at 37. On December 27, 2016, Debtor amended her schedule I to indicate that monthly amount received was $164.54, and a February 7, 2017 amendment rounded that figure to $164. Exs. 203, 206.
Given the history of irregular and insufficient payments, the accrual of a large back support obligation, and the issues with Michel's employment and health, the parties were faced with the need to evaluate not only the likelihood and possible amount of ongoing payments during the plan (a budget issue), but also the present value of the obligation for § 1325(a)(4) purposes. As noted, Debtor claimed the back support as exempt. If correct, this eliminates the significance of the present value issue. However if, as Trustee maintains, this asset is not exempt, its value must be determined and included in the statutorily required analysis.
Debtor made seriatim assertions as to the existence and value of the back support. The initial March 2016 schedule B did not disclose it. Ex. 200 at 11. A June 2016 amended schedule B asserted there was past due child support in the amount of $76,877.65 with the statement: "Value shown when reduced to present value" of $7,132.00. Exs. 106, 202. A December 2016 amended schedule B reflected the same gross and present value amounts but added "Value shown when reduced to present value due to uncollectability because ex husband has been diagnosed with Parkinsons disease." Exs. 107, 204.
The manner in which the $7,132.00 present value of this asset was reached was addressed at length. In 2016, Debtor's counsel, Bart Green, and Trustee's counsel, Holly Sutherland, met to discuss and address this matter. In her preparation for that meeting, Ms. Sutherland had discussed the valuation issue or process with two of the District's chapter 7 trustees.
During their meeting, Mr. Green and Ms. Sutherland accessed a website that they used to determine present value for the purposes of their calculations and discussions. Ms. Sutherland testified that they utilized a 15% discount rate on the total outstanding $76,877 obligation and arrived at the $7,132.00 figure. She further testified that she represented at that meeting to Mr. Green that they "had an agreement" as to the present value, and she believes this was the reason Debtor amended her schedule B to reflect the $7,132.00 present value.
Ms. Sutherland also testified that she did not, at that time, have actual or express authority from Trustee to reach such an agreement. However, she admitted since she took on the role of staff attorney in August 2015 she has regularly appeared for Trustee in Court, prepared documents and pleadings for filing and filed the same, and made agreements with attorneys on behalf of Trustee.
At a January 18, 2017 preliminary hearing on the present matters, Ms. Sutherland said the parties had "not been able to agree on valuing [this] asset for purposes of the best interest test[.]" Ex. 104 at 3. However, she subsequently conceded, "[W]e had agreed to a [present value] number" and it was only later that she determined she may have made a mistake in calculating it. Id. at 7-8. She was nonetheless quite clear at the January hearing that she and Mr. Green "had met and we came to the number and I ... definitely portrayed to Mr. Green that we had reached an agreement." Id. at 8. She was similarly clear at the February hearing that she represented to Debtor's counsel that they had reached, and did have, an
This Court in In re AICO Recreational Props., LLC, 2003 WL 1964190 (Bankr. D. Idaho Apr. 11, 2003), made the following observation:
Id. at *4-5 (further citing and quoting from In re Blele, 03.1 I.B.C.R. 85, 86, 2003 WL 25273798 (Bankr. D. Idaho 2003)). The Court also expressed an aversion to attacks on or disavowals of prior agreements, noting that "While the agreement... may have been regretted or even made by the lawyer without his client's consent, it was nevertheless entitled to be enforced, and `neither ignorance nor carelessness on the part of the litigant or his attorney provide grounds for relief under [Civil] Rule 60(b)(1).'" Id. at *5.
The Court also held in Callies v. O'Neal (In re O'Neal), 2012 WL 6107492 (Bankr. D. Idaho Dec. 10, 2012), that parties are bound by the conduct of their attorneys, and that "any other notion would be wholly inconsistent with our system of representative litigation, in which each party is deemed bound by the acts of his lawyer-agent[.]" Id. at *2 (quoting Link v. Wabash R.R. Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962)). O'Neal further notes that a client "is presumed to have voluntarily chosen the lawyer as his representative and agent [and] ordinarily cannot later avoid accountability for negligent acts or omissions of his counsel." Id. (quoting In re Hartman, 2009 WL 4263503, *3 n.7 (Bankr. D. Idaho Nov. 24, 2009)).
Ms. Sutherland's comments as to a lack of actual or express authority are not determinative. In addition to the authorities discussed above, In re Kollel Mateh Efraim, LLC, 334 B.R. 554 (Bankr. S.D.N.Y. 2005), stated: "An attorney can bind his client to a settlement only when the client has authorized him to [do] so. An attorney may nevertheless enter into a binding settlement if he has apparent authority, and the opposing attorney has no reason to doubt it." Id. at 559. After considering whether a party might rebut the presumption of actual authority with affirmative evidence (a "not insubstantial burden"), the court further addressed the issue of apparent authority. "Apparent authority consists of two elements: (1) a manifestation by the principal that the agent has authority and (2)
By virtue of Ms. Sutherland's testimony, and by this Court's observations in numerous hearings since August 2015, Trustee has manifested Ms. Sutherland's authority. She has allowed her counsel to appear and participate — without Trustee being present — in hearings in hundreds of chapter 13 cases, take positions on legal issues and procedures in those cases, agree to resolutions of disputes, and essentially act with full apparent authority. The Court can recall but a few occasions when Ms. Sutherland would demur at a suggested resolution, indicating in those rare instances that she "would need to check with Trustee." Indeed, the infrequency of such occurrences simply reinforces the perception and implicit representation that she otherwise had the requisite authority to act for Trustee.
At hearing, Debtor urged that the $7,132.00 present value figure for the back child support was conclusively established by the agreement. Ms. Sutherland does not deny an agreement was reached. Given Ms. Sutherland's apparent authority, that agreement should and must be enforced. The Court finds the present value of the support has been agreed by the parties to be, and it therefore is, $7,132.00.
Debtor claimed the $7,132.00 present value of the back due child support exempt under Idaho Code § 11-604(1)(b).
Idaho Code § 11-604 provides:
The parties raise no specific factual issues regarding the exemption claim. They agree that the funds are back child support owed to Debtor by Michel; that the children who were the subject of the support obligation reached majority many years ago; and that the funds at issue will likely be received, if at all, over a period of years. And, as noted above, they agreed that the present value of those funds is $7,132.00. What is not agreed, however, is whether the language of the Idaho statute, properly construed, supports the claimed exemption.
In re Russell, 163 B.R. 584 (Bankr. D. Idaho 1994), addressed the Idaho Code § 11-604(1)(b) support exemption. In Russell, the debtor received a parcel of real property from the support obligor to satisfy a $15,000 back child support obligation. The Court disallowed the claimed exemption, emphasizing that Idaho Code § 11-604(1)(b) exempts property only "to the extent reasonably necessary for the support of [the recipient] and his dependents," and that this phrase is defined by Idaho Code § 11-604(2) to mean "property required to meet the present and anticipated needs of the individual and his dependents." 163 B.R. at 585. Russell further stated: "Reimbursement of the debtors for money expended [by the support obligee] to make up for unpaid child support is not a present or anticipated need, and the property is therefore not exempt." Id. It concluded "[A] debtor cannot preserve the exemption ... by paying for the children's needs from his or her personal assets; the exemption is only for present and future needs, not past needs." Id. at 586.
In the present case only child support, and not spousal support, was to be paid by Michel. Both daughters subject to that obligation reached the age of majority many years ago. There is no doubt that Debtor's present circumstances are difficult, and that she certainly has "present and anticipated needs." But the support at issue was solely for the support of the daughters from the time of Debtor's divorce from Michel through, at the latest, a date about nine years ago. The decision in Russell controls.
Trustee's objection to exemption is well taken and it will be sustained.
Trustee argues that the case should be dismissed under § 1307(c) for "cause" and asserts further that the cause consists of an "unreasonable delay" on the part of Debtor. That motion further notes the issues, discussed at length above, about the valuation and treatment of the back child support, and it acknowledges the summer 2016 meeting at which the $7,132.00 present value figure was reached. It was the six month delay between those events and the filing of the motion that Trustee views as unreasonable. But the motion and Trustee's argument ignores the fact that it was Trustee's intransigence, and refusal to adhere to the agreed, present value figure reached during the 2016 meeting of counsel which helped create the delay.
The Court finds Trustee's contention that Debtor failed to timely prosecute her case, or delayed to the detriment and prejudice of creditors, to be unproven. The motion to dismiss, Doc. No. 30, will therefore be denied.
Debtor conceded that, in the event the back support was determined to be non-exempt, she would need to amend the proposed plan to deal with the addition of $7,132.00 to the calculations required under § 1325(a)(4). Debtor's motion to confirm the plan will therefore be denied, without prejudice to the filing of an amended plan.
Based on the foregoing, the Court will enter Orders (1) denying Trustee's motion to dismiss; (2) sustaining Trustee's objection to exemption; and (3) denying without prejudice Debtor's motion to confirm the present plan.
