[00:00:00] Speaker 03:
May it please the court, I am Dina Yunker and I represent Appellant State of Washington.

[00:00:05] Speaker 03:
This case is yet another attempt by a debtor to take for herself what the bankruptcy code assigns to creditors.

[00:00:12] Speaker 03:
Creditors should prevail here for two reasons.

[00:00:15] Speaker 03:
First, the terms of Massingale's plan, which was confirmed, binds her to pay creditors before she walks away with a house.

[00:00:24] Speaker 03:
Second, Massingale's argument puts courts in the absurd position of having to endorse an evasion of the law.

[00:00:32] Speaker 03:
This court needs to read the exemption statutes to effectuate Congress's intent.

[00:00:39] Speaker 03:
And the bankruptcy appellate panel failed to do so.

[00:00:42] Speaker 03:
The state asked that you reverse the BAP.

[00:00:45] Speaker 02:
So what do you make of the 100% FMV on the Schedule C?

[00:00:50] Speaker 03:
Well, there's a lot of information that we can gather, just starting with Schedule C.

[00:00:59] Speaker 03:
The creditors had before them during the objection period the fact that on Schedule C, in addition to a 100% of fair market value designation, the election, the statutory authority was Section 522D2.

[00:01:15] Speaker 03:
Debtors can't rewrite a part of the statute that they don't like.

[00:01:20] Speaker 03:
When they elected 522D1, they accepted the limits that 522D1 put on it.

[00:01:27] Speaker 03:
The second place on Schedule C that we note is that there's a box to check if they're claiming a homestead over $155,000.

[00:01:37] Speaker 03:
Massingale did not check that box.

[00:01:40] Speaker 03:
Then we also have Schedule A, which identifies the property subject to the exemption as the debtor's home.

[00:01:45] Speaker 03:
It designates the value of the home as $165,430 and specifies there's a secured claim on the home of $130,724.

[00:01:57] Speaker 03:
So it's been easy for anyone to see her equity was less than the statutory cap, just based on the pleadings that Massingale put before the creditors.

[00:02:06] Speaker 03:
And schedule A, by the way, is one place where one can do the equity calculation by looking at just a single schedule, if that is the inclination to hold people single.

[00:02:18] Speaker 02:
But what Ms.

[00:02:18] Speaker 02:
Massingale is going to say is if there was

[00:02:20] Speaker 02:
Ambiguity in any of these filings there was an obligation to object within 30 days.

[00:02:26] Speaker 02:
How do you address that?

[00:02:27] Speaker 03:
Well if if there was any it was if there is ambiguity in any of the information that Massingale put before her creditors the ambiguity must be construed against her as a drafter Because this is originating in chapter 11 and

[00:02:44] Speaker 03:
Absolutely chapter 11 is probably the most specific most significant reason that this case It doesn't make sense to apply the 100% fair market value language in this case, and that's because in chapter 11 debtors in possession are fiduciaries who are required to serve in the role of trustee they they

[00:03:09] Speaker 03:
are charged with preserving the assets of the estate and maximizing recovery for their Creditors and as such creditors are entitled to rely on their representations It does not make sense to let them play the cat-and-mouse game with the people over whom they are they serve as fiduciaries Can I ask you?

[00:03:28] Speaker 04:
Schwab limits the trustee to considering three entries on the Schedule C when determining whether an exemption is necessary, and you're telling us to look at the Chapter 11 plan, to look at Schedule A. Would we be running afoul of Schwab if we do that?

[00:03:42] Speaker 03:
Your Honor, you wouldn't be running a file of Schwab because Schwab says that that particular trustee in that Chapter 7 case was entitled to look at only that information in that one little place.

[00:03:56] Speaker 03:
But the fact of the matter is trustees must look at all of the information put before them by the debtor in order to execute their duties, their fiduciary duties to the creditors to maximize value of the estate.

[00:04:11] Speaker 03:
So the full context, that quote was actually taken out of context.

[00:04:17] Speaker 03:
The full quote is set forth in the state's reply brief.

[00:04:21] Speaker 03:
And you can see that it was an entitled to rely, not a directive to rely on three and only three.

[00:04:28] Speaker 04:
But you ask us to look at the Chapter 11 plan, but both the plan and the disclosure statement are very explicit that the debtors

[00:04:37] Speaker 03:
shall retain the debtor's home.

[00:04:39] Speaker 03:
That's correct.

[00:04:40] Speaker 03:
They're explicit that the debtor will retain the debtor's home on the condition that the creditors are paid in full.

[00:04:48] Speaker 03:
Debtors in possession are entitled, in the chapter 11, to retain the home.

[00:04:51] Speaker 03:
That's why they're saddled with the fiduciary, to retain their assets, because the trustee's not in place.

[00:04:56] Speaker 03:
That's why they're saddled with fiduciary obligations to their creditors.

[00:05:01] Speaker 04:
But if you say the equity in the home at the time the petition was filed was

[00:05:05] Speaker 04:
$34,706, then why didn't the state object when the bankruptcy court decided to grant the Massingales the full exemption of the $45,950?

[00:05:23] Speaker 03:
Because it seems to me that

[00:05:27] Speaker 03:
We certainly could have objected.

[00:05:29] Speaker 03:
We would have been within our rights to object.

[00:05:31] Speaker 03:
But the state has decided not to object to that difference between the equity that she showed during, in the beginning of, at the beginning of the petition date and the statutory cap that was allowed at the beginning of the petition date.

[00:05:50] Speaker 02:
So what is your, with respect to this Schedule C, is your argument that

[00:05:55] Speaker 02:
Later statements sort of eclipsed the 100% FMV or is your argument that the 100% FMV is just not something that moves the needle in the first place?

[00:06:04] Speaker 03:
I see my time's running out.

[00:06:05] Speaker 03:
May I answer the question?

[00:06:07] Speaker 03:
Go ahead.

[00:06:08] Speaker 03:
So my argument is that the statements were served contemporaneously.

[00:06:12] Speaker 03:
The plan and disclosure statement were circulated before the objection period even ran.

[00:06:16] Speaker 03:
And like I said, Massingale was a fiduciary to creditors.

[00:06:21] Speaker 03:
Creditors were entitled to rely on it.

[00:06:22] Speaker 02:
Would it have made a difference if the disclosure statement and the plan were circulated outside the 30 days?

[00:06:28] Speaker 02:
Would you have had to object at that point?

[00:06:31] Speaker 03:
No, Your Honor, because there was plenty of information in the rest of the schedules which trustees are obligated to examine.

[00:06:37] Speaker 02:
Okay.

[00:06:38] Speaker 02:
Why don't we hear from the trustee?

[00:06:40] Speaker 03:
Thank you.

[00:06:53] Speaker 01:
Good morning, Your Honor.

[00:06:54] Speaker 01:
Good morning, panel judges.

[00:06:58] Speaker 01:
My name is John Munding.

[00:06:59] Speaker 01:
I am the attorney for the Chapter 7 trustee, who is myself.

[00:07:03] Speaker 01:
My colleague from the state of Washington did an excellent presentation and argument concerning their position, both in the briefing and the argument today.

[00:07:12] Speaker 01:
But based on the panel's questions in my limited time, I'm going to jump right to the focus of, I believe, is the heart of the matter.

[00:07:20] Speaker 01:
First, this case begins its analysis at the appellate level with Law v. Segal.

[00:07:25] Speaker 01:
That's Justice Scalia's pen, and it dictates what should occur in this case and how a bankruptcy statute must be read according to its plain and unambiguous terms.

[00:07:39] Speaker 01:
Second, the decision creating

[00:07:42] Speaker 01:
and finding that all post-petition appreciation belongs to the debtor, not the bankruptcy estate, is directly in conflict with the holdings of Castleman and certainly Wilson v. Rigby, so I don't even need to address that.

[00:07:56] Speaker 01:
Coming back to the panel's discussion and concerns about the exemption and whether an objection needed to be lodged or not, you know, that's Taylor.

[00:08:07] Speaker 01:
And Taylor said, if you don't do it within 30 days after 4003B,

[00:08:12] Speaker 01:
You're out of luck.

[00:08:13] Speaker 01:
But that case is different for many reasons.

[00:08:15] Speaker 01:
First, it starts as a chapter seven.

[00:08:18] Speaker 01:
Second, the property to be claimed as exempt was described as unknown.

[00:08:24] Speaker 04:
What we have here is almost like a- Can I ask you a question?

[00:08:28] Speaker 04:
Why do we have to even reach the Law v. Siegel issue?

[00:08:31] Speaker 04:
Because here there wasn't an objection.

[00:08:36] Speaker 04:
Well, it starts- So we don't really need to delve into the issue about whether an equitable exemption to the bankruptcy code is being created or not.

[00:08:46] Speaker 01:
Thank you, Your Honor.

[00:08:47] Speaker 01:
And yes, we do need to get to Law v. Segal because Taylor is so different in the bankruptcy appellate panel, I believe, misstated and misapplied the holding of Taylor.

[00:08:59] Speaker 01:
Because again, we can't forget

[00:09:03] Speaker 01:
that the debtors were their own trustee.

[00:09:05] Speaker 01:
They were the trustee.

[00:09:07] Speaker 01:
So if you take the narrow approach of Taylor as the BAP did, it's illogical.

[00:09:11] Speaker 01:
The result is like a bad country song.

[00:09:13] Speaker 01:
They're their own trustee.

[00:09:15] Speaker 01:
They did the disclosures.

[00:09:17] Speaker 01:
But I would cite the panel to re-review the schedules, which are mundane ER 81 and mundane ER 83.

[00:09:26] Speaker 01:
Just the notations, there's so much information in here for a Chapter 7 trustee.

[00:09:32] Speaker 01:
And again, I'm armchair quarterbacking, because I was barred from making an objection under Federal Rule 1019, which also can't be modified under Siegel.

[00:09:43] Speaker 01:
You go to, you've got fair market value, it's disclosed.

[00:09:46] Speaker 01:
We have that in Schwab, fair market value was disclosed, but the value was higher.

[00:09:51] Speaker 01:
Here, in this case, the value of $165,000 was clearly disclosed.

[00:09:58] Speaker 01:
Nobody disputes that at the time of this filing on September 28, 2015, that was the fair market value of the House.

[00:10:05] Speaker 01:
No issue.

[00:10:07] Speaker 01:
Why would you have to object to it?

[00:10:09] Speaker 01:
The debtors are entitled to a homestead.

[00:10:11] Speaker 01:
Nobody questioned that.

[00:10:13] Speaker 01:
Nobody ever objected to say, you're not entitled to a homestead because you didn't reside in the property.

[00:10:17] Speaker 02:
Well, I think what the debtor is saying is we use the formulation that Schwab told us to use, 100% of FMV.

[00:10:23] Speaker 02:
They view that as a safe harbor of sorts.

[00:10:26] Speaker 01:
That's a very gratuitous interpretation.

[00:10:29] Speaker 01:
And it's regrettable the bankruptcy appellant panel jumped on it.

[00:10:33] Speaker 01:
But here in this case, unlike Schwab, there's no challenge that 165 was the value.

[00:10:39] Speaker 01:
So it's back of the napkin math.

[00:10:42] Speaker 01:
I mean, it's that simple.

[00:10:43] Speaker 01:
You take the value at Schedule A, which is restated at Schedule C. You take the debt, which is at Schedule A, clearly described.

[00:10:52] Speaker 01:
Nobody disputes that.

[00:10:53] Speaker 01:
You do the simple math as a trustee.

[00:10:55] Speaker 01:
But again, I'm armchair quarterbacking.

[00:10:57] Speaker 01:
But it's that straightforward.

[00:10:59] Speaker 02:
What is the significance of the box that was unchecked?

[00:11:03] Speaker 01:
It's significant and it's kind of gratuitous because that statute is there to make sure people aren't moving their property to Texas or somewhere else.

[00:11:12] Speaker 01:
And there's a box up at the top of the schedule that says you're capped.

[00:11:15] Speaker 01:
And if you're going to try and claim more and take your property to Texas when these schedules were back around in the OJ debacle time, you've got to check that box so everybody's on notice.

[00:11:27] Speaker 01:
But if you want to take that position, it's kind of like 100% fair market value of dicta,

[00:11:33] Speaker 01:
Sounds like a great argument.

[00:11:35] Speaker 01:
You don't even have to look at that box, but that box is very clear that says you better be under, what is it, 155 or 160.

[00:11:43] Speaker 04:
So that box on the top of schedule C, that doesn't have to do with any kind of state law homestead exemption issue?

[00:11:50] Speaker 01:
If you're moving property and you're claiming the state homestead exemption, then you've got to check that box for that state.

[00:11:56] Speaker 01:
If you're trying to get around the federal, which is capped, it's just,

[00:12:00] Speaker 01:
it says not to exceed and what's interesting if you go to schedule c and you look at the third column

[00:12:08] Speaker 01:
And I must say I should have emphasized this more in my briefing.

[00:12:13] Speaker 01:
Current value of property without deducting exemption.

[00:12:18] Speaker 01:
That means subtraction.

[00:12:19] Speaker 01:
Again, the math is so straightforward.

[00:12:21] Speaker 01:
Trustees do 500 to 800 of these cases a year.

[00:12:24] Speaker 01:
You're moving.

[00:12:25] Speaker 01:
But it would be malpractice to simply look at a single schedule.

[00:12:29] Speaker 01:
You have to take schedule A, which has its purpose,

[00:12:33] Speaker 01:
Schedule C, which is the exemptions.

[00:12:35] Speaker 01:
Schedule D is the secured debt.

[00:12:38] Speaker 01:
And you take them cumulatively, but they also balance and check each other.

[00:12:42] Speaker 02:
So what does 100% of FMV mean, then, in that box?

[00:12:47] Speaker 01:
100% fair market value is the value of the resident as of the date of filing.

[00:12:52] Speaker 01:
We've cited, I think it was Gephart and Wilson v. Rigby, but it's a snapshot in time.

[00:12:57] Speaker 01:
Here it was September 28, 2015.

[00:13:00] Speaker 01:
and that's what it means.

[00:13:02] Speaker 01:
Fully disclosed, 165, nobody ever disputed it.

[00:13:06] Speaker 01:
In Schwab, they said the value was higher than the personal property, the equipment, and therefore challenged it.

[00:13:13] Speaker 01:
Here, at the time of filing, the resonance was 165, end of story.

[00:13:17] Speaker 02:
And that's in the column that says value of claimed exemption, so you're taking 100% of FMV to mean value of the claimed exemption up to the statutory cap?

[00:13:25] Speaker 01:
Up to the statutory cap, and that's why

[00:13:28] Speaker 01:
You know, it was an interesting issue, but for $10,000, as a trustee, when I made the motion, I never challenged the exemption.

[00:13:35] Speaker 01:
I simply sold the property and said, here's what they're getting.

[00:13:37] Speaker 01:
And that was never challenged, never stayed, and I sold the property.

[00:13:42] Speaker 01:
But you come back to that, it is capped.

[00:13:46] Speaker 01:
$45,950, that's the statutory amount.

[00:13:52] Speaker 01:
But if you go down schedule C, they're using D5 within this.

[00:13:56] Speaker 01:
There's a purpose.

[00:13:57] Speaker 01:
Bolto statutes say not to exceed.

[00:13:59] Speaker 01:
They're interactive with each other.

[00:14:01] Speaker 01:
If you don't use your full homestead up to the cap, you can use D5, the wild card, to protect your other property.

[00:14:08] Speaker 01:
That's what they did.

[00:14:09] Speaker 01:
It's good bankruptcy practice here.

[00:14:12] Speaker 01:
But nobody is exceeding the cap.

[00:14:14] Speaker 01:
And what's kind of outrageous, and the court touched on it,

[00:14:17] Speaker 01:
is the plan and disclosure statement to start as a chapter eleven two hundred fifty thousand dollars in fees out no money to creditors but they confirm the plan within the plan disclosure statement cited in my briefing it is crystal clear they stated they would retain any property

[00:14:35] Speaker 01:
that exceeds value in excess of the statutory limitations, meaning they know the caps are there.

[00:14:42] Speaker 01:
This argument at the end of the day occurs because we had a three-year period when the debtors were the trustee.

[00:14:49] Speaker 01:
What they did is their business, I wasn't involved.

[00:14:52] Speaker 01:
I became involved during that time.

[00:14:54] Speaker 01:
There's post-petition equity increase in the property, substantial.

[00:14:59] Speaker 01:
I sell it, now we got money to fight over.

[00:15:01] Speaker 01:
Because of the date this was filed, it probably should have been a seven.

[00:15:05] Speaker 04:
Let me ask you one question.

[00:15:06] Speaker 04:
Since you won't have a rebuttal, I suspect that the appellee will come up and say, hey, Taylor sets a bright line rule.

[00:15:13] Speaker 04:
You have to object within 30 days.

[00:15:16] Speaker 04:
And if there's no objection, then that exemption has to be honored, even if there wasn't even a good faith basis for it.

[00:15:24] Speaker 04:
So you distinguish that case by saying, you know,

[00:15:32] Speaker 04:
whether there was a chapter seven trustee or not, but that's not what Taylor relies on for its holding, right?

[00:15:40] Speaker 04:
So how should we think about Taylor?

[00:15:44] Speaker 04:
Because I suspect the appellee will come up and really rely on that.

[00:15:49] Speaker 01:
Precisely, Your Honor.

[00:15:51] Speaker 01:
What disclosures did these debtors make on the date of the filing with very sophisticated bankruptcy counsel, unlike Taylor?

[00:16:00] Speaker 01:
And these are new forms because it's a whole different era.

[00:16:03] Speaker 01:
There is sufficient information in these forms.

[00:16:08] Speaker 01:
to make a determination that the value of this house, the fair market value, was 165,430.

[00:16:14] Speaker 01:
That's the first analysis.

[00:16:17] Speaker 01:
Today we go right to Zillow, check it.

[00:16:19] Speaker 01:
If it's fine, leave it.

[00:16:21] Speaker 01:
The next step is the amount of secured claim as disclosed.

[00:16:26] Speaker 01:
Then you take your napkin, and I still use paper and pen.

[00:16:29] Speaker 01:
Boom, you're below the statutory cap.

[00:16:32] Speaker 01:
The disclosures were adequate.

[00:16:35] Speaker 01:
Not the best, but they're adequate.

[00:16:38] Speaker 01:
But fair market value, 100% of that, okay, so you're claiming 165,430 is your exemption.

[00:16:47] Speaker 01:
Well, that doesn't work because one, you're capped by statute.

[00:16:50] Speaker 01:
Two, the property is secured as you disclose.

[00:16:54] Speaker 01:
So you just take the columns, do the math.

[00:16:56] Speaker 01:
And they also elected, this is very important, Schedule C, 522D1.

[00:17:02] Speaker 01:
They couldn't use D5 if they truly believed they had

[00:17:08] Speaker 01:
to the statutory cap or an excess instead they did their own math they came up with thirty four thousand and then you do that math on the other numbers under d five and lo and behold you hit the statutory cap so it's just a

[00:17:24] Speaker 01:
It's a great argument, and that's all it is, but that's why we have Law v. Segal.

[00:17:29] Speaker 01:
And I know I'm out of time, and I would like to just, the analysis that Justice Scalia did in that case and how he addressed the dicta in Murama is fascinating.

[00:17:43] Speaker 01:
And you just can't take that 100% fire market value to say,

[00:17:50] Speaker 01:
You can exceed.

[00:17:52] Speaker 01:
Take the federal speed limit, for example.

[00:17:56] Speaker 01:
It's a maximum.

[00:17:58] Speaker 01:
You know, my Maserati may go 185.

[00:18:01] Speaker 01:
Doesn't mean I can go 120.

[00:18:02] Speaker 01:
I'm capped.

[00:18:02] Speaker 01:
And that's how it works.

[00:18:05] Speaker 02:
I think we'll let you go somewhat over your time.

[00:18:07] Speaker 02:
I want to see if my colleagues have additional questions for you.

[00:18:09] Speaker 02:
Thank you.

[00:18:11] Speaker 04:
No, thank you.

[00:18:12] Speaker 04:
I have no questions.

[00:18:13] Speaker 02:
Thank you.

[00:18:14] Speaker 02:
And we'll hear from counsel for Ms.

[00:18:17] Speaker 02:
Massingale.

[00:18:30] Speaker 00:
Good morning, may it please the court.

[00:18:31] Speaker 00:
Darren Digicento here for the appellee, Rosanna Massengill.

[00:18:36] Speaker 00:
As the BAP in this case correctly noted, Your Honors, the trial court here did err.

[00:18:43] Speaker 00:
And the trial court erred because seven years after this exemption became final under 522L and Rule 4003B1,

[00:18:54] Speaker 00:
The trial court on its own accord changed what was entered in that value of claimed exemption box on Schedule C for my clients.

[00:19:04] Speaker 00:
And the trial court didn't have authority to do that.

[00:19:07] Speaker 00:
And that's why we're here today.

[00:19:08] Speaker 00:
That's why we originally appealed.

[00:19:12] Speaker 00:
The idea that this case is about other documents, a plan that wasn't confirmed for a year and a half after this exemption became final, or any other argument related to the bankruptcy petition and schedules ignores the authority that dictates the outcome here.

[00:19:30] Speaker 02:
What authority is that?

[00:19:31] Speaker 00:
The authority is Taylor, Schwab, and the Owen case, along with its progeny, including from this circuit, including N. Ray Smith and N. Ray Tillman, that's currently up on a request for cert.

[00:19:43] Speaker 02:
I'll tell you my concern with the reliance on those cases, and I'll let you give your response.

[00:19:48] Speaker 02:
The first is that neither of them originated in Chapter 11.

[00:19:52] Speaker 02:
And the second is that, unlike those cases, here what we have is a statement in a Schedule C that's then followed within the 30-day objection period

[00:20:01] Speaker 02:
with numerous statements that seem directly contradictory to what was stated on the schedule C, even assuming it means what you say it means.

[00:20:10] Speaker 02:
So how does Taylor and Schwab govern in light of those two differences?

[00:20:14] Speaker 00:
Certainly, Your Honor.

[00:20:16] Speaker 00:
The Schwab and Taylor decisions and outlining, as Judge Cope pointed out, the Schwab Court points to the areas in Schedule C that can inform a party an interest if they need to object to an exemption.

[00:20:30] Speaker 00:
And that's part of that balancing test for exemptions.

[00:20:34] Speaker 00:
And sometimes it favors the creditors.

[00:20:36] Speaker 00:
Sometimes it favors the debtor.

[00:20:38] Speaker 00:
But that is why.

[00:20:39] Speaker 00:
And it's because those exemptions are set so early in the case.

[00:20:43] Speaker 00:
It's set long before a plan is ever approved in a Chapter 11, the same way it is.

[00:20:49] Speaker 04:
But in Taylor, the court held that, you know, the trustee could rely on oral representations about the value of the claim and didn't limit it to any schedules in

[00:21:02] Speaker 04:
that the trustee should consider when deciding whether to object or not?

[00:21:07] Speaker 00:
Certainly, Your Honor.

[00:21:07] Speaker 00:
My response to that would be that in Taylor, the actual exemption claimed was listed as not a dollar amount within a statutory limit.

[00:21:16] Speaker 00:
It was listed as unknown.

[00:21:18] Speaker 00:
And that unknown language is what created the disparities within the Third Circuit that ultimately led to the decision in Schwab, which went up to our Supreme Court.

[00:21:28] Speaker 00:
And Justice Thomas was tasked with identifying and trying to clarify, what's the difference?

[00:21:34] Speaker 00:
In Taylor, you have unknown listed.

[00:21:37] Speaker 00:
In Schwab, you have a dollar amount that is within the statutory authority.

[00:21:42] Speaker 00:
And what they argued there was, under value of claimed exemption, we put that dollar amount.

[00:21:46] Speaker 00:
But that dollar amount also matched what we valued the tools at at that time.

[00:21:52] Speaker 00:
And only after they later learned that the appraisal came in higher did they say, well, what we really meant was we wanted the whole thing.

[00:22:01] Speaker 00:
And you should have known.

[00:22:02] Speaker 04:
But in Taylor, the debtor kind of repeatedly told the trustee a good faith estimate of what the claim was worth.

[00:22:13] Speaker 04:
And in the case here, I don't see where the Massingales advised the creditors that the amount of exemption would exceed the statutory cap, unlike in Taylor.

[00:22:25] Speaker 00:
Well, my answer to you, Judge Coe, would be that the box itself, value of claim to exemption, 100% of fair market value, has to be above any statutory limit because, as Mr. Munding pointed out, Section 522D1 at the time provided for joint debtors filing an exemption of just south of $46,000.

[00:22:47] Speaker 00:
And 100% of fair market value is clearly on its face not consistent with a dollar amount, which again the Schwab holding did hold to.

[00:22:59] Speaker 02:
So let's assume you're right about that.

[00:23:01] Speaker 02:
What about the unchecked box?

[00:23:03] Speaker 00:
The unchecked box, I don't believe, has any implication here at all, Your Honor.

[00:23:06] Speaker 00:
And my legal reasoning for that is the same code provision that Mr. Munding was referencing, Section 105, in his comments about Law v. Segal, the powers of the court to control the courtroom and to control its caseload may allow it to modify forms and to do things like that.

[00:23:26] Speaker 00:
But what it can't do is to change substantive rights provided by 522L

[00:23:32] Speaker 00:
to have exemptions timely determined in the event there is no objection.

[00:23:37] Speaker 00:
And that's why the language used here is so critical and so important to the decision in this case.

[00:23:43] Speaker 00:
When Justice Thomas provided what the appellants here have called dicta, or gratuitous dicta, which number one, I don't agree was dicta at all.

[00:23:53] Speaker 00:
I believe it was an explanation of its reasoning that was designed to do exactly that, which was to clarify the differences.

[00:24:01] Speaker 00:
But even if it is dicta, the error by the trial court here

[00:24:06] Speaker 00:
And in the arguments of the appellants is it fails to give, considered dicta of our Supreme Court, the greater weight that it's afforded under authority.

[00:24:15] Speaker 02:
Let's assume you're right about that and that you're right about the box and that you're right that 100% FMV fits within what Schwab was talking about, at least in the four corners there.

[00:24:25] Speaker 02:
What about all the other statements that then came in the disclosure statement and in the plan?

[00:24:29] Speaker 02:
Because what concerns me is that they don't seem to be consistent with your interpretation of Schedule C.

[00:24:36] Speaker 00:
Okay.

[00:24:37] Speaker 00:
Thank you, Your Honor, for clarifying.

[00:24:39] Speaker 00:
My response to you would be that all of those other statements in the initial disclosure statement, the initial proposed plan that was provided,

[00:24:48] Speaker 00:
People everywhere all the time, parties in interest, US trustees, object to claimed exemptions in Chapter 11 cases.

[00:24:56] Speaker 00:
This is not uncommon, and the initial proposed plan and disclosure statement, I would say near all the time, change multiple times before they ever reached a point of confirmation.

[00:25:09] Speaker 00:
For the state to argue that they should be able to rely willy-nilly on

[00:25:13] Speaker 00:
this position that was filed in an initial disclosure statement just doesn't hold weight or at a minimum creates that ambiguity that says they did exactly what in Schwab the trustee did, which was, you know, or in Taylor, excuse me, which the trustee did, which is they took the chance of do I object or not, and they elected not to.

[00:25:34] Speaker 00:
And the result was that in Taylor, you don't get to reserve anything else for the estate if that is the case.

[00:25:41] Speaker 02:
I mean the concern one would have I think with the position is that it's not just one statement in the disclosure statement or the plan, it's a series of statements that are all indicating in one way or the other that your clients were not

[00:25:58] Speaker 02:
Seeking more than the cap or if they were they were going to pay the creditors first and It's not just one.

[00:26:04] Speaker 02:
It's you know, we could probably list six seven, maybe eight such statements and so now it seems that you're trying to come in and Point us to one notation the schedule C and ignore the rest of those statements

[00:26:16] Speaker 00:
Based on Supreme Court authority, yes, Your Honor.

[00:26:18] Speaker 00:
That is correct, because that is the controlling decision here.

[00:26:22] Speaker 00:
It's just that box.

[00:26:24] Speaker 00:
This isn't a math problem.

[00:26:26] Speaker 00:
It's not a, well, we could use these other things and figure it out.

[00:26:29] Speaker 00:
That's not what Schwab said.

[00:26:30] Speaker 00:
What Schwab said was, you look at that box, and if what's claimed in that box is anything other than a statutorily, within the permissible amounts, dollar amount, that there has to be an objection by a party in interest,

[00:26:44] Speaker 00:
Or if they choose not to, they do so at their own risk.

[00:26:47] Speaker 00:
And if they do not, then that is when the Owen case becomes so critical, and it goes down that path.

[00:26:54] Speaker 00:
Because the exemptions are final 30 days after the 341 meeting, as Your Honor knows.

[00:27:00] Speaker 00:
And once that becomes final, the effect from Owen and its progeny is that exempt property is revested in the debtor.

[00:27:08] Speaker 00:
It was long gone before a plan was ever approved in this case.

[00:27:12] Speaker 00:
It was long gone before any of these things

[00:27:14] Speaker 00:
And to be honest, frankly, I'm not sure that the intent of anybody matters other than in that box that Justice Thomas referenced.

[00:27:24] Speaker 00:
And I believe that is controlling here.

[00:27:26] Speaker 04:
But I think the big difference here is what you just said.

[00:27:29] Speaker 04:
In Schwab, the trustee didn't have to object because the stated value of the interest was within the statutory limits.

[00:27:37] Speaker 04:
And in this case, if you look at, I'm just looking at your

[00:27:43] Speaker 04:
625, the Massingale said the amount by which the exemption would be exceeded is zero, because even if the value of the home is $165,430, there's a lien of $130,724, which is reflected in Schedule A. That Schedule A looks like the equity that the Massingales have in their home is less than $35,000.

[00:28:06] Speaker 04:
So I guess I'm unclear how schwa fits here

[00:28:12] Speaker 04:
when, well, I mean, I actually think it does fit here because there's so many representations that the interest is within the statutory exemption in these various documents.

[00:28:25] Speaker 04:
So why wouldn't Schwab hold that the trustee was not required, or I guess there wasn't trustee at the time, but there was not a objection required by the creditors.

[00:28:34] Speaker 00:
Well, Your Honor, you're correct that if you do the math and you were to go through that process, that this would not have been above a statutorily exemptible amount if it were claimed in the box for the amount of the claimed exemption as the 35,000, 36,000, whatever it was at the time.

[00:28:51] Speaker 00:
If that had been listed in the box, there would have been no reason to object.

[00:28:55] Speaker 00:
The reason to object is found, Your Honor, in the fact that that box did not have a dollar amount that fell within there.

[00:29:04] Speaker 00:
It instead claims something different.

[00:29:06] Speaker 02:
And the reason... Is there any limit though on what a debtor can then say after writing 100% FMV?

[00:29:13] Speaker 02:
The debtor can say directly contradictory things and then years later we're going to come back and point to a single notation that says 100% FMV and that's it?

[00:29:23] Speaker 00:
Well, Your Honor, once the exemption becomes final at that point, it's not a part of the estate.

[00:29:30] Speaker 00:
And 522C says it can't be used for payment or any sort of recourse against any property of the estate from pre-petition debt.

[00:29:39] Speaker 02:
But is there anything a debtor could say after that Schedule C that would then put the trustee in a position of not having to object or a creditor?

[00:29:48] Speaker 00:
I would contend, based on the language in Schwab, that no, Your Honor, that is what they are in.

[00:29:53] Speaker 00:
This is a very limited issue on exemptions that has a very tight time frame and a short window.

[00:29:59] Speaker 00:
And once that is claimed, learned parties, and the state of Washington is an incredibly

[00:30:06] Speaker 00:
well-argued party and interests, they do great things.

[00:30:09] Speaker 00:
I'm a part of their state.

[00:30:11] Speaker 00:
I don't have animosity towards them at all.

[00:30:12] Speaker 00:
But here, there was an obligation pursuant to what was listed in that value of claimed exemption, or even if they just had a question about it.

[00:30:22] Speaker 00:
They put it in front of the court under an objection, and then it is dealt with before that 30 days runs.

[00:30:27] Speaker 00:
But I have not found a mechanism in the bankruptcy code or in any case law throughout the country at any point that once that property is exempt, pulls it back into the estate for application.

[00:30:40] Speaker 00:
I have not found it.

[00:30:42] Speaker 04:
Would you concede that if you look at the Chapter 11 plan, the disclosures,

[00:30:47] Speaker 04:
the petition with the schedules, there's at least ambiguity as to what 100 percent of FMB means.

[00:30:53] Speaker 00:
I would concede at most, Your Honor, that there would have been an obligation enough to say that the state should have asked the court about it.

[00:31:02] Speaker 02:
And what's your response to the appellants pointing out the fiduciary duties that your clients had at this point in the Chapter 11 process?

[00:31:10] Speaker 00:
Certainly, I would contend, as I stated earlier, Your Honor, that

[00:31:14] Speaker 00:
exemptions are challenged all the time in Chapter 11 plans.

[00:31:17] Speaker 00:
What these debtors did here is they utilized language that is found in Schwab exactly in the box that it was supposed to be.

[00:31:25] Speaker 00:
And outside of that, every other number they listed in their plan was accurate at the time, as the Chapter 7 trustee has looked at.

[00:31:34] Speaker 00:
There was not a misrepresentation about anything.

[00:31:36] Speaker 00:
There was not anything in that Schedule C

[00:31:39] Speaker 00:
That would be untoward because at the time the house was encumbered by a mortgage that took up a lot of its value.

[00:31:47] Speaker 00:
But these people by putting these debtors by placing 100% of fair market value were doing exactly what Justice Thomas said.

[00:31:56] Speaker 00:
expressing their intent to exempt the entire value of that asset or the asset itself from the estate.

[00:32:04] Speaker 00:
It's that box that controls, Your Honor.

[00:32:06] Speaker 02:
I mean, just looking at the disclosure statement, amount by which exemption exceeded zero.

[00:32:12] Speaker 00:
Correct, and at the time it didn't.

[00:32:15] Speaker 02:
How is that consistent with the Schedule C?

[00:32:17] Speaker 00:
Well the value of the property if they had taken out as your honor pointed out a moment ago under that math problem if you figure it out it would have fit but even if they had put you know under the hundred percent of fair market value there was zero that was going to go to creditors and in the other part of the language you're referencing I believe it says fully exempt and then pursuant to 522 and that was based on

[00:32:42] Speaker 00:
Arguably the the entry of a hundred percent fair market value.

[00:32:45] Speaker 02:
There was nothing that would have gone to the estate out of the residence We've taken you close to the end of your time do you want to conclude I

[00:32:56] Speaker 00:
Certainly your honor just to the extent that it did come up on the post petition or pre petition Excuse me post petition accrual of any monies in nearing back to the estate The reason that doesn't apply here is exactly what we talked about on this being in the Owen and then race Smith line and not within the Gebhart

[00:33:18] Speaker 00:
or Wilson v. Rigby or Castleman line of cases, none of those ever dealt with a claim of 100% of fair market value that had the effect of removing the asset from the estate.

[00:33:29] Speaker 00:
In all of those cases, there was either a dollar amount or a proved amount that fit, and that is why any post-petition increase in value here in Newhurst to the Massingale.

[00:33:41] Speaker 00:
And I would ask that this court hold that all of the remaining proceeds of the House

[00:33:46] Speaker 00:
Belong to mrs. Massingale and not to the estate.

[00:33:49] Speaker 02:
I'm happy to answer any other questions the panel has Okay, well hearing none I want to thank you for your argument this morning and thank your honor.

[00:33:58] Speaker 02:
We'll now hear rebuttal from the state Thank you your honors

[00:34:08] Speaker 03:
Until you asked the question, Massingale didn't address her fiduciary role.

[00:34:13] Speaker 03:
She served as the trustee for her creditors.

[00:34:16] Speaker 03:
If her argument really means what she says it means, then she should have objected to her own exemption.

[00:34:23] Speaker 03:
And that's ridiculous.

[00:34:26] Speaker 03:
but it is entirely appropriate to require a fiduciary to be honest and transparent with her creditors.

[00:34:33] Speaker 03:
And the only reading of Schedule C that respects Massengal as a fiduciary is to permit 100% of fair market value up to any adjustable limit, just like the judicial conference did when it amended the official form.

[00:34:47] Speaker 03:
and just like what Massingale herself represented when she solicited votes in favor of her plan.

[00:34:53] Speaker 03:
The BAP misapplied Supreme Court precedents, producing absurd results.

[00:34:58] Speaker 03:
In addition, it took the unwarranted step of extending the Schwab dicta to the Chapter 11 context.

[00:35:06] Speaker 03:
No other court in the land has done this.

[00:35:08] Speaker 02:
But you can dispose of this case without- I'm not sure any other court has been confronted with it either, have they?

[00:35:14] Speaker 03:
Not to my knowledge, Your Honor, that's true.

[00:35:18] Speaker 02:
Why not just object at the time?

[00:35:21] Speaker 03:
Because we didn't have to object.

[00:35:23] Speaker 03:
The information before the creditors was replete with indications that the value of her equity in the property, which is how 522 measures the exemption, the value of her equity in the property was less than the statutory cap.

[00:35:40] Speaker 03:
But you can dispose of this case without getting mired in the Schwab issue, because Massingale's confirmed Chapter 11 plan binds her and her creditors.

[00:35:49] Speaker 03:
This court should reverse the BAP, reinstate the bankruptcy court's order, and hold Ms.

[00:35:56] Speaker 03:
Massingale to the terms of her binding plan.

[00:36:00] Speaker 03:
Thank you.

[00:36:02] Speaker 02:
Thank you.

[00:36:03] Speaker 02:
I want to thank all counsel for the helpful briefing and argument.

[00:36:06] Speaker 02:
This matter is submitted.