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Cooper v. Crow

United States District Court, W.D. North Carolina, Asheville Division

August 1, 2017



          Matfin Reidinger United States District Judge

         THIS MATTER is before the Court on the Notice of Appeal of Langdon M. Cooper (“Trustee”), Trustee in Bankruptcy for Teresa Jo Crow (“Debtor”). [Doc. 1].


         Eight months after filing her voluntary bankruptcy petition and before the case was closed, the Debtor moved to amend her schedules to claim an exemption in an individual retirement account (IRA) that had been omitted from her original petition. The Trustee opposed this amendment, arguing that the Debtor failed to show the change in circumstances required under North Carolina law for modifications of exemptions, N.C. Gen. Stat. § 1C-1603(g). The Bankruptcy Court concluded that the IRA was exempt under N.C. Gen. Stat. § 1C-1601(a)(9) and that any waiver of that exemption resulting from its omission from the original schedule was the result of mistake forgivable under N.C. Gen. Stat. § 1C-1601(c)(3). Based thereon, the Bankruptcy Court conditionally allowed Debtor's motion to amend schedules to claim the retirement account as exempt. [B Doc. 95].[1], [2] From that Order, the Trustee appeals.


         On February 22, 2013, the Debtor filed a voluntary petition under Chapter 13 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of North Carolina. [B Doc. 1]. Because of the nature and extent of the Debtor's assets, her case required considerably more preparation than a typical consumer case. [B Doc. 95 at 2; see B Doc. 118 at 27-8]. Long before her bankruptcy, the Debtor's late husband and late father established several companies, including a real estate company, a construction company, and a holding company. On their deaths, the Debtor was left as partial owner and manager of these ventures, from which she held a few parcels of real property, assets related to the companies, and rights appurtenant thereto. [B Doc. 95 at 2]. Her petition shows ownership interests in twelve parcels of real property, a revocable trust, eight vehicles, and three corporations. [B Doc. 1 at 8-12]. During the economic downturn, the Debtor, with the Estate of Robert Steven Crowe, the Robert Steven Crowe Revocable Trust, and the real estate holding company, borrowed what was alleged to be over $4.7 million from Branch Banking and Trust Company, secured by a number of parcels of real property. [B Doc. 95 at 2]. The Debtor had an ownership interest in at least some of these parcels. Those loans were sold to Gibraltar BB2, LLC (“Gibraltar”). In June 2012, Gibraltar brought an action in state court seeking to collect on the loans. [Id.; B Doc. 118 at 11].

         Facing the action by Gibraltar, the Debtor began investigating the possibility of bankruptcy. After consulting several attorneys from various parts of the State, the Debtor was encouraged, for the sake of convenience, to find representation near the Bryson City Division of the Bankruptcy Court. The Debtor engaged Edward Hay (“Hay”), a certified bankruptcy law specialist in Asheville, North Carolina. [B Doc. 95 at 2-3; B Doc. 118 at 12-13]. The Debtor advised Hay that her primary concerns were to save her home and protect her retirement account. Before filing the petition, the Debtor provided Hay with numerous documents related to her business and real estate holdings and her personal finances, including her retirement account statements. Hay, in turn, recommended she file a Chapter 13 bankruptcy and prepared a petition and schedules. [B Doc. 95 at 3]. He filed the Debtor's Chapter 13 petition on February 22, 2013. [See B Doc. 1].

         Hay's efforts were focused primarily on accurately scheduling and valuing all of the Debtor's numerous real estate holdings and sorting through the various, interconnected business interests, as those assets would determine what was required in the bankruptcy case. [B Doc. 95 at 3]. It was clear from the beginning that the Debtor's retirement account would be wholly exempt and had nothing to do with the claims in the bankruptcy estate or the assets available to pay these claims. As a result, it was inadvertently omitted from the schedules. [Id.; B Doc. 118 at 27-28]. At the hearing, Hay testified the omission was not the Debtor's fault and was an innocent mistake. [B Doc. 118 at 30]. Shortly after the petition was filed, Gibraltar objected to confirmation of the Chapter 13 plan and sought to dismiss the case, arguing that the Debtor was over the debt limits imposed by 11 U.S.C. § 109(e). The Debtor, in turn, converted the case to Chapter 7 on April 12, 2013. [B Doc. 95 at 3].

         Due to the complexity of the case, the Trustee met with the Debtor and Hay at Hay's office on May 7, 2013, which was prior to the first meeting of creditors. [B Doc. 118 at 38]. The Debtor contends the Trustee learned of the existence of the retirement account at this May 7, 2013 meeting. [B Doc. 95 at 3; B Doc. 118 at 13-14]. The Debtor testified she and the Trustee specifically discussed her relationship with financial planner Ronald Blue and Company (“Ronald Blue”), which managed her retirement account, and gave the Trustee account statements. [B Doc. 118 at 13-14, 26]. The Trustee admits that he discussed Ronald Blue with the Debtor but denies that he was told about the retirement account or given any statements at that meeting. [B Doc. 118 at 38-39].

         The first meeting of creditors was held on May 29, 2013. [B Doc. 118 at 39]. The Debtor testified under oath that her petition was accurate and complete at this meeting. [Id.]. In order to facilitate his review of the case and inspection of the Debtor's business holdings, the Trustee planned a meeting with the Debtor on July 24, 2013. Two days before the meeting, the Trustee and his paralegal reviewed the financial records the Trustee had in his possession related to the Debtor's bankruptcy. In documents that had been provided by Gibraltar, the Trustee and his paralegal discovered a 2012 financial statement the Debtor had given to Gibraltar disclosing her retirement account. [B Doc. 118 at 19]. The Trustee testified this was the first he learned of the account. [Id.].

         At the July 24, 2013 meeting, the Trustee questioned the Debtor regarding her retirement account. The Debtor testified this was the first time she realized the account was not listed on her schedules. [B Doc. 95 at 4; see B Doc. 118 at 19]. Sometime thereafter, the Debtor authorized Ronald Blue to provide the Trustee with information on the account. The Trustee issued a subpoena for these documents. The Trustee did so not because the Debtor was being uncooperative or obstructionist, but for the protection of Ronald Blue. [B Doc. 95 at 4; B Doc. 118 at 24-25].

         On October 7, 2013, the Debtor moved to amend her schedules to claim the retirement account as exempt. [B Doc. 55]. The Trustee objected. [B Doc. 89]. As noted above, the Bankruptcy Court allowed Debtor's motion to amend schedules to claim the retirement account exempt. [B Doc. 95]. This appeal followed. [See Doc. 1].


         Section 158(a)(1) of Title 28 gives federal district courts jurisdiction to hear appeals “from final judgments, orders, and decrees” entered by bankruptcy courts. 28 U.S.C. § 158(a)(1). “Grant or denial of a claimed exemption is a final appealable order from a bankruptcy proceeding.” In reBrayshaw, 912 F.2d 1255, 1256 (10th Cir. 1990) (citations omitted). See also Matter of Brissette, 561 F.2d 779, 781 (9th Cir. 1977). “The Bankruptcy Court's conclusions of law are reviewed de novo and its findings of fact are reviewed for clear error.” Campbell v. Hanover Ins. Co., 457 B.R. 452, 456 (W.D. N.C. ...

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