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Smith v. Frazier

July 13, 2009

BRIAN WADE SMITH AND JENNIFER JEAN SMITH, APPELLANTS/DEBTORS,
v.
DANA S. FRAZIER, APPELLEE/TRUSTEE.



The opinion of the court was delivered by: Michael J. Reagan United States District Judge

MEMORANDUM AND ORDER

REAGAN, District Judge

A. Introduction and Procedural/Factual Overview

On October 1, 2006, Brian and Jennifer Smith of Carterville, Illinois filed a voluntary Chapter 7 petition in the United States Bankruptcy Court for the Southern District of Illinois (Case No. 06-41035). Three weeks later, the Smiths filed various schedules (denominated as Schedules A through F) to their petition. Schedule A listed real property in which they had an ownership interest. Schedule B listed personal property (such as checking accounts, household furnishings, insurance policies, and interests in 401(k) retirement plans). Schedule C listed all property the Smiths claimed as exempt.

The appeal before this Court involves two amounts listed by the Smiths on Schedules B and C -- i.e., whether those amounts were property of (or exempt from) the bankruptcy estate.

The Smiths maintain that certain wages they had earned but had not yet been paid on the date they filed for bankruptcy protection were exempt from their bankruptcy estate.*fn1 See Record on Appeal, designations 2 and 3, Docs. 24 and 25 in Bankruptcy Case ("Bkr. Docs." 24 & 25). The Chapter 7 Trustee, Dana S. Frazier ("Frazier" or "the Trustee"), disagreed. The parties briefed the issue.

Frazier objected to the claimed exemption (Bkr. Doc. 42). The Smiths responded (Bkr. Doc. 55). Frazier replied with a memorandum renewing her initial ground for objection and adding a second basis for the objection (Bkr. Doc. 57). The Bankruptcy Judge, the Honorable Kenneth J. Meyers, held a hearing on December 5, 2006. At the conclusion of that hearing, Judge Meyers announced that he was sustaining the Trustee's objection.

On December 14, 2006, Judge Meyers entered a written Order disallowing the Smiths' exemption (Bkr. Doc. 60). The Smiths appealed on December 22, 2006 and designated their appellate record January 2, 2007.

B. Applicable Standards of Review & Jurisdictional Basis

Federal Rule of Bankruptcy Procedure 8013 provides that, on appeal, the District Court "may affirm, modify, or reverse a bankruptcy judge's ... order ... or remand with instructions for further proceedings." Rule 8013 further provides:

Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.

Case law of this Circuit similarly instructs that a bankruptcy judge's "[f]actual findings are reviewed for clear error; [and] legal conclusions are reviewed de novo." In re Doctors Hosp. of Hyde Park, Inc., 474 F.3d 421, 426 (7th Cir. 2007), citing FED.R.BANKR.P. 8013 and In re Crosswhite, 148 F.3d 879, 881 (7th Cir. 1998). Accord Meyer v. Rigdon, 36 F.3d 1375, 1378(7th Cir. 1994)(district court reviews bankruptcy judge's fact findings for clear error and legal conclusions de novo).

The appeal sub judice challenges Judge Meyers' disallowance of the Smiths' unpaid wage exemption, a legal issue the undersigned District Judge reviews de novo. Judge Meyers' ruling was a final order in a core proceeding, falling within the scope of 28 U.S.C. § 157(b)(2)(B)("Core proceedings include ... allowance or disallowance of ... exemptions from property of the estate...."). This Court enjoys subject matter jurisdiction under 28 U.S.C. § 158(a)("The district courts of the United States shall have jurisdiction to hear appeals from final ...


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