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In re Russo

United States District Court, Third Circuit

August 13, 2013

IN RE: IN THE MATTER OF THOMAS RUSSO, II Debtor.
v.
THOMAS RUSSO, II Debtor/Appellee. JOSEPH D. MARCHAND, Trustee/Appellant,

ON APPEAL FROM AN ORDER OF THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY

ROBERT B. KUGLER, District Judge.

OPINION

This matter comes before the Court on the appeal of Trustee Joseph D. Marchand ("Trustee"). The Trustee appeals the Bankruptcy Court's Orders denying his motion to invalidate the exemption and the subsequent motion for reconsideration. In the motions before the Bankruptcy Court, The Trustee asserted that Debtor and Debtor's counsel deceptively feigned cooperation in determining the basis for an annuity for several months, only to reverse course and insist that the Trustee was time-barred from objecting to Debtor's claimed exemption. The Bankruptcy Court found that the Trustee's objection was untimely and denied both the Trustee's motion and later motion for reconsideration. Because the Court agrees that the Trustee failed to timely file an objection, the Orders of the Bankruptcy Court are AFFIRMED.

I. BACKGROUND AND PROCEDURAL HISTORY

Over twenty-five years ago, Thomas Russo II ("Debtor") was involved in a serious car accident, which caused multiple severe and permanent injuries. In order to settle the personal injury action, the defendants established an annuity for the Debtor. This annuity and its underlying justifications form the foundation of this dispute.

On November 4, 2011, the Debtor filed a voluntary Chapter 7 Bankruptcy petition, along with the accompanying Bankruptcy Schedules. Appellant Br. at 7. On Schedule B, which requires Debtors to list their assets (most of which will presumably become property of the estate), Debtor listed an "accident related annuity, not accessible until 2019" with a value of $140, 000. Id . On Schedule C, on which a debtor lists the property they wish to reclaim as exempt, Debtor exempted the "accident related annuity" pursuant to 11 U.S.C. §522(d[1] Id . According to the Debtor, the annuity was established to compensate him for lost future wages resulting from the accident. On December 19, 2011, the Trustee conducted the first meeting of creditors. Id . On or about December 22, 2011, the Trustee requested documents from Debtor's counsel related to the annuity. Id . Recognizing that the deadline for the Trustee to file objections to the Debtor's exemptions was looming, the parties later entered into a consent order to extend the deadline to May 17, 2012. Id . The parties did not enter any subsequent consent orders extending the time, nor did the Trustee petition the Bankruptcy Court to extend the filing deadline. Instead, the Trustee argues that both parties "operated under a mutual understanding that the Deadline would be extended until the Trustee completed his due diligence." Id . at 7-8. Section 522(d

After months of the Debtor's counsel and Trustee working to obtain information from the Debtor's former personal injury attorneys, Debtor's counsel finally provided an authorization form for the relevant files to be turned over to the Trustee. Id . at 8. On August 21, 2012, the Trustee received the files. The debtor's file includes a Demand for Settlement letter with the words "no economic expert" and the initials "MDL" hand-written on the first page. This notation is dated "8/23/12." In the letter, the Debtor's attorney states that "based upon the foregoing, and in light of the severe and permanent nature of the multiple injuries sustained by our client, for purposes of an expeditious and amicable resolution of this matter, we are willing to accept the sum of $650, 000.00 in full and final settlement of this claim." Mot. to Liquidate Annuity, Ex. H.7 at 8-9.

On September 12, 2012, the Trustee held a supplemental 341 hearing. During the hearing, the Debtor recounted the events surrounding the accident. The Trustee also examined the Debtor on the jobs he had held since the accident and his current ability to work. According to the Trustee, the hearing "confirmed that there was no wage or economic loss resulting from the underlying accident and the loss was solely from injuries which are not exempt." Appellant Br. at 8. On December 20, 2012, the Trustee filed a Notice of Assets. Id . at 9. In January 2013, the Trustee received information on the estimated liquidation value on the annuity. That same month, Debtor's counsel corresponded with the Debtor and confirmed that the Debtor had not been responsive throughout the Chapter 7 proceeding. Id . Finally, in February 2013, Debtor's counsel advised the Trustee that he would not settle because the Trustee was time-barred from filing an objection to the Debtor's exemption. Id.

On February 25, 2013, the Trustee filed a motion to liquidate the annuity and invalidate the exemption. Id . In the motion, the Trustee argued that the exemption was improper and that the motion was timely under Federal Rule of Bankruptcy Procedure 4003(b[2] In opposition, the Debtor averred: "My recollection of our discussions was that the settlement award was structured for future payments designed to offset this expected reduced ability to earn an income." Certification of Debtor in Opp'n to Mot. to Liquidate Annuity ¶3.

On April 2, 2013, the parties appeared before the Honorable Gloria M. Burns for oral argument on the Trustee's motion. During the hearing, the Bankruptcy Court found that the Trustee's objection was untimely and the court was barred from addressing the merits of the Trustee's motion. The Trustee promptly filed a motion for reconsideration. On April 30, 2013, the parties again appeared before the Bankruptcy Court. The Trustee argued that the court had incorrectly applied the Supreme Court's decision in Taylor v. Freeland & Kronz et al., and that the Schwab v. Kelly decision actually governed the case. 503 U.S. 638 (1992); 130 S.Ct. 2652 (2010). After hearing the parties' arguments, the Bankruptcy Court remained unconvinced and denied the Trustee's motion for reconsideration. The Trustee then and sought a stay pending the appeal.

II. LEGAL STANDARD

This Court has appellate jurisdiction over a final order of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1). Under Rule 8013 of the Federal Rules of Bankruptcy Procedure, a district court cannot set aside the factual determinations of a bankruptcy court unless they are "clearly erroneous." Fed.R.Bankr.P. 8013; In re Cellnet Data Systems, Inc. , 327 F.3d 242, 244 (3d Cir. 2003). A factual finding is clearly erroneous only where "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Id . (quoting United States v. United States Gypsum Co. , 333 U.S. 364, 395 (1948

The Court reviews the Bankruptcy Court's legal conclusions de novo and applies a dual standard to mixed questions of law and fact. Id .; see also In re Brown , 951 F.2d 564, 567 (3d Cir. 1991) ("Mixed questions of law and fact must be divided into their respective components and the appropriate test applied."). An exercise of discretion by the bankruptcy court is conclusive ...


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