United States Bankruptcy Court for the District of New Jersey Case No. 05-42963.
The opinion of the court was delivered by: Katharine S. Hayden, U.S.D.J.
Before the Court are cross-appeals from several orders of the United States Bankruptcy Court for the District of New Jersey, fixing certain exemptions claimed by appellant, Earl C. Booth, in his personal Chapter 7 bankruptcy case. The orders below determined that two-thirds of certain personal injury settlement proceeds were attributed to his loss of future earnings (and were thus exempt from the bankruptcy estate), and one-third was attributed to his pain and suffering (and was thus ineligible for such an exemption). Booth and cross-appellant Barbara A. Edwards, the Chapter 7 trustee appointed to administer the bankruptcy estate, appeal on various grounds. Booth also challenges the bankruptcy court‟s award of fees for services provided by the Chapter 7 trustee‟s special counsel.
II. APPELLATE JURISDICTION & STANDARD OF REVIEW
This Court has intermediate appellate jurisdiction to assess final orders of the United States Bankruptcy Court. 28 U.S.C. § 158(a). In doing so, it reviews de novo the bankruptcy court‟s conclusions of law, its factual findings for clear error, and its exercise of discretion (which includes the award of attorney‟s fees) for an abuse thereof. See In re Top Grade Sausage, Inc., 227 F.3d 123, 125 (3d Cir. 2000), overruled on other grounds by Lamie v. United States Tr., 540 U.S. 526 (2000); Lucerne Inv. Co. v. Estate Belvedere, Inc., 411 F.2d 1205, 1207, (3d Cir. 1969). In reviewing the bankruptcy court‟s findings of fact, this Court must "give due regard to the opportunity of [the bankruptcy] court to judge, first-hand, the credibility of the witnesses." In re Rosen, 208 B.R. 345, 348 (D.N.J. 1997) (quoting Fellheimer, Eichen & Braverman, P.C. v. Charter Techs., Inc., 57 F.3d 1215, 1223 (3d Cir. 1995)).
III. FACTUAL BACKGROUND & PROCEDURAL HISTORY*fn1
Booth filed a Chapter 7 bankruptcy petition on September 30, 2005. On Schedule B of his petition, Booth listed his assets, which included on line 20 "possible personal injury suit for broke [sic] femur...." This listing referenced Booth‟s pending civil action resulting from a slip and fall injury sustained on September 4, 2002. On Schedule C, Booth listed as exempt from the bankruptcy estate the following amounts expected to be derived from the personal injury action: $8,522 pursuant to 11 U.S.C. § 522(d)(5); $50,000 pursuant to 11 U.S.C. § 522(d)((11)(E); and $18,450 pursuant to 11 U.S.C. § 522(d)(11)(D). For all three entries, Booth listed their current market values as "Unknown."
The bankruptcy court appointed Edwards as trustee of Booth‟s bankruptcy estate on October 7, 2005. On November 16, 2005, Edwards conducted a meeting of creditors as required by 11 U.S.C. § 341. It is undisputed that Edwards did not file a formal objection to Booth‟s scheduled exemptions within 30 days of the § 341 meeting under Rule 4003 of the Federal Rules of Bankruptcy Procedure. The bankruptcy court granted Booth a discharge under Chapter 7 of the Bankruptcy Code on January 20, 2006.
Thereafter, Booth received an offer of $75,000 to settle the pending personal injury action. Edwards filed a formal notice of the settlement offer in the bankruptcy court on June 7, 2006, which was followed by a Certificate of No Objection to the settlement on June 28, 2006. The bankruptcy court granted Edwards‟s application to retain Booth‟s personal injury attorney as special personal injury counsel to the trustee on October 26, 2006, and thereafter granted the attorney‟s request for fees in the amount of $23,000.*fn2
On September 21, 2006, Edwards filed a Motion to Fix Debtor‟s Personal Injury Exemption. Specifically, she requested the bankruptcy court to limit Booth‟s claimed exemptions to $28,675,*fn3 claiming that Booth could only use his available "wild-card" exemption (pursuant to 11 U.S.C. § 522(d)(5)) in the amount of $10,225, and his available personal injury exemption (pursuant to 11 U.S.C. § 522(d)(11)(D)) in the amount of $18,450. Edwards argued that the remaining $23,325 was attributable to compensation for Booth‟s pain and suffering, and was therefore ineligible for exemption under 28 U.S.C. § 522(d)(11)(D). Booth, through counsel, opposed the motion, arguing alternatively that: (1) under Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), discussed infra, the bankruptcy court lacked jurisdiction to entertain Edwards‟s motion because Edwards had not objected to the claimed exemptions within 30 days of the § 341 conference; and (2) that in any event the remaining funds represented compensation for Booth‟s loss of future earnings, and were thus eligible for exemption under 11 U.S.C. § 522(d)(11)(E). Following a preliminary hearing, the bankruptcy court ordered that the $28,675 not in dispute be turned over to Booth, and directed the parties to submit supplemental briefing.
On November 1, 2007, the bankruptcy court held a plenary hearing to resolve Edwards‟s motion, and announced its decision on March 27, 2008. On the threshold issue, the court first held that despite her failure timely to object, Edwards did not waive her objection to the extent of Booth‟s scheduled exemption. Noting that the Supreme Court had strictly construed Rule 4003 of the Federal Rules of Bankruptcy Procedure to preclude untimely objections to debtors‟ claimed exemptions, see Taylor, 503 U.S. at 642, the court nevertheless adopted a narrow exception to the rule articulated by the First Circuit in Mercer v. Monzack, 53 F.3d 1 (1st Cir. 1995). Specifically, the court found that Edwards was not objecting to Booth‟s scheduled exemption qua exemption, but was only petitioning the court to determine whether the balance of the settlement funds did in fact reflect a loss of future earnings. Because the court agreed with Edwards that her failure to file a timely Rule 4003(b) objection did not foreclose her ability to object to the particular characterization of the settlement proceeds, it proceeded to determine the permissibility of the Booth‟s claimed § 522(d)(11)(E) exemption.
On the merits, the bankruptcy court ultimately ruled that two-thirds of the balance of the $23,325 reflected a loss in Booth‟s future earnings, and one-third reflected pain and suffering.
Consequently, the court ordered that $15,550 be turned over to Booth and $7,775 be retained by the estate.*fn4 Following the decision, Booth (who had opted to proceed pro se on February 26, 2007), wrote to the bankruptcy court requesting the court to rescind the order fixing the claimed exemptions. When instructed to file a formal motion, Booth so moved to rescind the previous order. The court construed the filing as both a motion to rescind/vacate and a motion for reconsideration, and denied them both. It also entered an order awarding $5,043.27 in attorney‟s fees and costs to Forman, Holt, Eliades, and Ravin, LLC, for services performed as special counsel to the trustee. Booth filed a timely notice of appeal, to which Edwards cross-appealed.
A. The Parties' Positions
Booth premises his pro se appeal on several grounds. First, he resumes his argument that the bankruptcy court lacked jurisdiction under Taylor to entertain the motion to fix his claimed exemptions because Edwards did not object within 30 days to the exemptions he claimed on Schedule C. Second, he argues that the bankruptcy court lacked jurisdiction under 28 U.S.C. § 157(b)(2) because the proceeding was related to a personal injury claim, and was therefore not a core proceeding. Third, he argues that the bankruptcy court‟s findings of fact were clearly erroneous because 100% of the funds in dispute were in reality allocable to a loss in future earnings, and were thus exemptible. Finally, he argues that the bankruptcy court erred by awarding fees and costs to the trustee‟s special counsel.
Edwards argues that the Court should affirm the bankruptcy court‟s reasoning under Mercer that it had the authority to determine whether the balance of the settlement proceeds did in fact reflect a loss in Booth‟s future earnings. In her cross-appeal on the merits, Edwards argues that the court clearly erred by finding that any (much less than two-thirds) of the funds were allocable to such a loss in ...