531 B.R. 640
Bankr. N.D. Miss.2015Background
- Debtors Samantha and Ollie Scott filed a joint Chapter 13 petition; Samantha had a prepetition worker’s compensation claim listed on Schedule B (initially as a personal injury claim).
- Debtors filed an Amended Schedule B and Amended Schedule C adding the worker’s compensation claim as exempt, but did not serve the trustee, U.S. Trustee, or creditors or file a certificate of service as required.
- Trustee moved to compel the debtor’s law firm, Chhabra & Gibbs (counsel for Samantha Scott), to file an application for employment approval under 11 U.S.C. § 327, § 328, and Fed. R. Bankr. P. 2014.
- Debtor opposed, arguing that the worker’s compensation claim is exempt under Mississippi law and thus §§ 327/328 and Rule 2014 (which regulate trustee employment of professionals) do not apply to counsel retained by a chapter 13 debtor to pursue an exempt claim.
- Parties stipulated the worker’s compensation claim predated the petition and that Samantha (not the trustee) was pursuing it; trustee asserted the claim is estate property absent a timely valid exemption and that any settlement might require court approval.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 327(e), § 328, and Fed. R. Bankr. P. 2014 require court approval for special counsel retained by a Chapter 13 debtor to pursue a prepetition claim | Trustee: § 327(e) should govern because court approval is needed to regulate employment and settlements and a trustee cannot reasonably be forced to carry this duty in chapter 13 | Debtor: § 327(e)/§ 328/Rule 2014 apply to the trustee only; chapter 13 debtor is not a trustee and need not comply with those provisions | Court: Denied — §§ 327/328 and Rule 2014 do not apply to the debtor’s employment of Chhabra & Gibbs; those provisions govern employment by a trustee (or debtor in possession where applicable) |
| Whether other bankruptcy rules/statutes require disclosures or court oversight of debtor’s counsel retained to pursue an exempt claim | Trustee: Court should have oversight (e.g., for settlements) | Debtor: Exempt state law claim means counsel need not follow those trustee-focused provisions | Court: Noted other provisions may apply—§ 329 (fee disclosure), Rule 2016(b), § 330(a)(4)(B) for estate-funded payments, and Rule 9019 for compromises if claim is estate property |
| Whether Debtors properly claimed the worker’s compensation claim as exempt by their Amended Schedule C | Trustee: Amended Schedule C must be properly served and comply with local rule so parties can object | Debtor: Had listed the claim on Amended Schedule C (but failed to serve) | Court: Debtors failed to comply with Fed. R. Bankr. P. 1009 and Local Rule 4003-1(a); ordered Debtors to amend Schedule C properly within 14 days so parties may object under Rule 4003(b) |
Key Cases Cited
- Stanley v. Trinchard, 579 F.3d 515 (5th Cir. 2009) (bankruptcy law preempts conflicting state law; debtors submit to bankruptcy court jurisdiction)
- Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1 (2000) (statutory text governs when plain)
- Wischan v. Adler (In re Wischan), 77 F.3d 875 (5th Cir. 1996) (prepetition causes of action are property of the estate)
- Taylor v. Freeland & Kronz, 503 U.S. 638 (1992) (consequences of failing to timely object to exemptions)
- Armstrong v. Capshaw, Goss & Bowers, LLP, 404 F.3d 933 (5th Cir. 2005) (substance of a filing controls over its label)
- In re Woodmar Realty Co. v. McLean (In re Woodmar Realty Co.), 306 F.2d 479 (7th Cir. 1962) (a debtor may settle claims not property of the estate without Rule 9019 approval)