Ernest D Hook and Pamela Jo Henderson

IN THE UNITED STATES BANKRUPTCY COURT FOR THE
WESTERN DISTRICT OF MISSOURI
IN RE: )
)
ERNEST D. HOOK and ) Case No. 04-41254
PAMELA JO HENDERSON )
)
Debtors. )
MEMORANDUM OPINION
Debtor Pamela Jo Henderson claimed a wage exemption with respect to certain
accounts receivable generated in her bookkeeping business. The Chapter 7 trustee objected,
and this Court sustained the objection. Henderson then filed an amendment to Schedule C
to change the amount of such receivables, but still claimed the funds as exempt wages. At
about the same time, she filed a motion for reconsideration of the previous Order. The
trustee again objected to the amended exemptions. This is a core proceeding under 28
U.S.C. § 157(b)(2)(B) over which the Court has jurisdiction pursuant to 28 U.S.C. §
1334(b), 157(a), and 157(b)(1). The following constitutes my Findings of Fact and
Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as
made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy
Procedure. For the reasons set forth below, I deny the motion to reconsider, and disallow
the amended exemptions.
FACTUAL BACKGROUND
Henderson is a bookkeeper who owns and operates Henderson Accounting as a sole
proprietor. On March 4, 2004, she filed this Chapter 7 bankruptcy petition. On Schedule C
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of her bankruptcy schedules she claimed as exempt the sum of $5,565.00 from “accounts
receivable” in the amount of $5,850.00. As to such accounts receivable, she claimed
$300.00 as exempt pursuant to the catchall Missouri personal property exemption (Mo.
Stat. Ann. § 513.430(3)). The trustee did not object to that claim of exemption. A total of
$5,265.00, however, was claimed as exempt wages pursuant to section 525.030(2) of
Missouri’s Revised Statutes. As to the wage exemption, on March 31, 2004, the trustee
filed a timely objection. The objection notified Henderson, consistent with Rule 9013-1 of
the Local Rules of Practice, United States Bankruptcy Court, Western District of Missouri,
that if no response was filed within 20 days, the matter would be ruled by the Court without
further notice or hearing. Henderson did not file a timely response to the objection, and on
April 23, 2004, this Court entered its Order sustaining the objection. On April 30, 2004,
Henderson amended her Schedule C to claim a total of $3,392.00 of the accounts receivable
as exempt wages pursuant to section 525.030(2) of Missouri’s Revised Statutes, now
describing the receivables as “Personal Service Earnings”. On May 3, 2004, she filed a
motion for reconsideration of the Order of April 23, 2004, stating that her amended
exemptions had clarified both the value of the receivables, and the fact that such receivables
represent personal service earnings. The trustee objected to the amended exemptions. On
June 1, 2004, this Court held a hearing on both the motion to reconsider and the trustee’s
objection to amended exemptions. At the hearing Henderson testified that she is the head
of her household and that the accounts receivable were generated primarily from her
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personal services (though she does have an assistant who helps in this work). She also
testified that she has certain expenses associated with her business, including rent, postage,
supplies, software, and the salary of her assistant.
There are four issues before me: (1) whether the first Order sustaining the trustee’s
objection should be given res judicata effect; (2) whether there is any basis to amend
Schedule C in light of this Court’s Order sustaining the objection; (3) whether the motion
to reconsider should be granted; and (4) whether Henderson is entitled to claim all of the
funds in her accounts receivable as exempt due to her personal services when she
admittedly did not perform all of the personal services. I will not reach the fourth issue
since I find that the amendment is not warranted, and that there is no basis to reconsider the
prior order denying the claim of exemption pursuant to section 525.030(2) of Missouri’s
Revised Statutes.
DISCUSSION
I sustained the trustee’s objection to Henderson’s claim of exemption when she failed
to file a response. Instead, Henderson amended Schedules B and C for the stated purpose
of more accurately explaining that the accounts receivable resulted from her personal
services, and to clarify the amount. Thus, I must decide if Henderson’s amendment
effectively alters the original claim, or merely restates her claim after an Order sustaining
the trustee’s objection had been entered. In other words, does the doctrine of preclusion
prevent Henderson from amending her exemption schedule as to this exemption? “‘Res
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1Leonard v. Southwestern Bell Corp. Disability Income Plan, 341 F.3d 696, 701 (8th Cir.
2522 U.S. 222, 118 S. Ct. 657, 139 L. Ed. 2d 580 (1998).
3522 U.S. at 233 n.5.
4Leonard at 341 F.3d 701.
5Gurley v. Hunt, 287 F.3d 728, 731 (8th Cir. 2002).
6Thomas at 522 U.S. at 233 n.5.
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judicata’ is the term traditionally used to describe the two discrete effects of preclusion.”
1 As the United States Supreme Court explained in Baker by Thomas v. General Motors
Corporation,2 a valid final adjudication of a claim precludes a second action on that claim
or any part of it.3 This effect was historically known as res judicata and is now commonly
known as claim preclusion.4 The test applied to determine if claim preclusion bars litigation
of a claim is: (1) whether the prior order was rendered by a court of competent jurisdiction;
(2) whether the order was a final order on the merits, and (3) whether the same cause of
action and the same parties or their privies were involved.5
The second effect of the doctrine of preclusion involves an issue of fact or law that
is actually litigated and resolved by a valid final judgment. Such judgment binds the parties
in a subsequent action, whether on the same or a different claim. 6 This effect was
historically known as collateral estoppel and is now commonly known as issue preclusion.
The test applied in the Eighth Circuit to determine if issue preclusion bars litigation of an
issue is (1) whether the issue sought to be precluded is the same as that involved in a prior
action; (2) whether the issue was actually litigated in the prior action; (3) whether the issue
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7Leonard v. Southwestern Bell Corp. Disability Income Plan, 341 F.3d 696, 701 (8th Cir.
8270 B.R. 417 (Bankr. E.D. Mich. 2001).
9Id. at 420.
10Id. at 422.
11Id. at 424 (citations omitted).
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was determined by a valid and final order; and (4) whether the determination was essential
to the prior judgment.7
In In re Daniels,8 the debtors failed to file a timely response to the trustee’s
objection to their claim of exemption as to a pending personal injury suit. As a result, the
bankruptcy court entered an order sustaining the objection. The debtors did not appeal or
seek reconsideration of that order. After the trustee settled the lawsuit the debtors amended
Schedule C claiming the proceeds of the settlement as exempt.9 The court held that despite
the general policy of liberally allowing amendments to bankruptcy schedules, courts should
disallow an amended claim of exemption where the effect of the amendment is to allow
debtors to relitigate an exemption claim that has already been determined by the court.10
The court also relied on the doctrine of preclusion. It found that the court’s order sustaining
the trustee’s objection to exemption was a final judgment on the merits--even though the
claim had not been litigated--because the debtors had every opportunity to litigate and
failed to do so.11 In other words, an order entered after a party with proper notice fails to file
a timely response is considered to be a judgment on the merits.
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As such, the Order sustaining the trustee’s objection is a valid order unless the
amendment offers a different basis for Henderson’s claim. Henderson original Schedule C
claimed as exempt:
Property Relevant Law V a l u e o f E x e m p t i o n V a l u e o f
Property
Accounts Receivable RS Mo § 525.030(2) $315.00
$350.00
Account receivable
owed by Glass Central
to Henderson
Accounting Services
Accounts Receivable RSMo § 525.030(2) $4,950.00 $5,500.00
Accounts receivable for RSMo § 513.430(3) 300.00
work done for regular
clients during the
month of February
estimated to be
approximately $5,500.00.
After this Court’s Order of April 23, 2004, sustaining the trustee’s objection to this claim
of exemption, she amended Schedule C as follows:
Property Relevant Law Value of Exemption V a l u e o f
Property
Accounts Receivable RS Mo § 525.030(2) $315.00
$350.00
Personal service
earnings for bookkeeping
owed by Glass Central
to Henderson
Accounting Services
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12For relevant law as to this issue, see In re Parsons, 252 B.R. 480, 485 (Bankr. W.D. Mo.
2000), affirmed, Parsons v. Union Planters Bank (In re Parsons), 262 B.R. 475 (B.A.P. 8th Cir.
2001), affirmed, Parsons v. Union Planters Bank (In re Parsons), 280 F.3d 1185 (8th Cir. 2002)
(holding that only personal services directly attributable to a debtor are subject to a claim of
exemption. Debtor has the burden of demonstrating the percentage attributable to her labor and the
percentage attributable to the labor of others); In re Pruss, 235 B.R. 430, 434 (B.A.P. 8th Cir.
1999), appeal dismissed and remanded, 229 F.3d 1197 (8th Cir. 2000), opinion vacated, 255
B.R. 314 (B.A.P. 8th Cir. 2000) (the Bankruptcy Appellate Panel for the Eighth Circuit (the BAP)
held that an attorney who practiced as a solo practitioner could claim her accounts receivable as
exempt wages if she was solely responsible for the generation of the accounts. The Eighth Circuit
dismissed the appeal as moot after the bankruptcy court dismissed the underlying case. On remand
the BAP vacated the opinion, calling into question what if any precedential value this case now
has, even though it was cited by the trustee at the hearing).
7
Accounts Receivable RSMo § 525.030(2) $3,077.00 $3,419.10
Personal service earnings RSMo § 513.430(3) 300.00
For bookkeeping and
quarterly report preparation
work done for regular
clients during the
month of February.
Henderson did not amend the provision of Missouri’s Revised Statutes under which she
claimed the exemption. She did not amend the category for which she claimed the
exemption. She did amend or “clarify” the amounts, but the trustee’s objection did not go
to the amount claimed. And, she sought to clarify that her personal services generated the
accounts receivable. I note that, at the hearing, she testified that she paid an employee to
perform some of the bookkeeping tasks. I need not, however, decide what portion of these
receivables was attributable to the personal services of the debtor.12 I find that the
amendment did not substantially alter the nature or the legal basis for the original claim of
exemption. I, therefore, will not allow her to file an amended claim of exemption because
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13In re Daniels, 270 B.R. 417, 422 (Bankr. E.D. Mich. 2001).
14Fed. R. Civ. P. 59(e).
15Nova Home Health Serv., Inc. v. Casagrande (In re Casagrande), 143 B.R. 893, 900
(Bankr. W.D. Mo. 1992).
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the effect would be to allow her to relitigate an exemption claim that this Court has already
determined.13
That brings me to the issue of whether there is any basis to reconsider the Order of
April 23, 2004, which sustained the trustee’s objection, in light of the amendment to the
scheduled exemptions. Rule 59 of the Federal Rules of Civil Procedure, as made applicable
by Rule 9023 of the Federal Rules of Bankruptcy Procedure, provides that a “motion to
alter or amend a judgment must be filed no later than 10 days after entry of the judgment.”14
I find that Henderson timely filed her motion. This Court will grant a Rule 59(e) motion
upon a showing of manifest error of law or fact or presentation of newly-discovered
evidence.15 Henderson made no such showing. She only argued that she was entitled to
claim her accounts receivable as exempt because she generated the accounts receivable by
her personal services. She also argued that she was filing an amended Schedule C to clarify
that the accounts receivable accrued from her personal services and to clarify the amount.
She did not argue that this Court erred in sustaining the trustee’s objection when she failed
to file a response, nor did she offer any argument that she could not have offered in a timely
response. Henderson offered no cause for this Court to reconsider the Order. She did not
argue excusable neglect. She offered no explanation of her failure to file a timely response.
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She gave this Court no basis to grant the motion to reconsider. I, therefore, deny the motion
to reconsider this Court’s Order sustaining the trustee’s objection to Henderson’s claim of
exemption.
An Order in accordance with this Memorandum Opinion will be entered this date.
/s/ Arthur B. Federman
Bankruptcy Judge
Date: June 4, 2004
Copy to: Jerald Enslein
Mindy Morse
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