Ellis Wade Dunn

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
NEW BERN DIVISION
IN RE:
ELLIS WADE DUNN,
DEBTOR.
CASE NO. 05-09708-8-JRL
Chapter 7
ORDER
The matter before the court is the trustee’s objection to the debtor’s amended claim of
exemptions. A hearing was held in Wilmington, North Carolina on June 23, 2010.
The debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code on
October 14, 2005. A final decree and discharge was entered February 7, 2006. In October 2009,
the trustee learned that the debtor was entitled to a personal injury settlement from a mass tort
pharmaceutical product litigation suit commenced prior to the bankruptcy case. The claim was
not listed on the debtor’s bankruptcy schedules. Based on this new information, the trustee
moved to re-open the case by motion granted November 23, 2009. The debtor then amended his
schedules to claim the personal injury settlement as exempt under § 1C-1601(a)(8). The trustee
asserts that the debtor’s failure to schedule the asset amounts to bad faith.
At hearing, the debtor testified that the omission was accidental and that he never
intended to hide any assets from the court. The debtor stated that he could not recall whether his
SO ORDERED.
SIGNED this 07 day of July, 2010.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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1 The errors committed by her replacement rose to such a high level that the attorney was
forced to come out of retirement in an attempt to rectify the problems.
2
attorney had asked if he was involved in any pending lawsuits, nor whether he, in fact, informed
his attorney of the claim. He claimed that prior to and during the bankruptcy case, he was taking
many medications which affected his ability to think and function. To support these contentions,
the debtor provided the court with letters from his physician that listed in detail numerous mind-
altering medications prescribed to the debtor for anxiety, depression, fibromyalgia, and chronic
back pain. As a side-effect of these medications, the debtor asserted that he frequently became
light headed and was unable to think clearly. He was prescribed the medications before his
bankruptcy petition was filed and throughout the pendency of the case. In addition to his own
mental and physical health challenges, the debtor’s case was complicated when the attorney he
hired to file his bankruptcy petition retired. Her practice was taken over by an attorney whose
incompetence led to a multitude of errors, which remain well-remembered by this court. 1
The debtor also produced a letter from the attorney prosecuting the class action suit as
evidence of his subjective belief that he would not recover any money from the lawsuit. The
form letter dated May 2, 2006, was broadly addressed to “OxyContin Client” and informed the
debtor that the class action had been dismissed by the Supreme Court of Mississippi in 2004, that
no settlement or judgment had been reached on any claims after four years of litigation, and
suggested that the litigation would not be resolved any time soon. This is one of four letters the
debtor claims to have received during the five years of litigation, all of which gave him the
impression that a successful outcome was unlikely. Additionally, the debtor maintained that he
did not initiate the suit himself or have any active involvement in the case, but that he merely
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received a letter from an attorney informing him that the lawsuit was in progress and occasional
updates on the status of litigation, all of which suggested that financial recovery was unlikely.
Bankruptcy Rule 1009(a) allows a debtor to amend a voluntary petition, schedules, or
statement as a matter of course at any time before the case is closed. FED . R. BANKR . PRO .
1009(a). Reopening a case does not revive the debtor’s absolute right to amend the schedules.
In re Wilmoth, 412 B.R. 791, 795 (Bankr. E.D. Va. 2009). However, the court has discretion to
permit the debtor to amend the schedules if the failure to act before the case closed resulted from
excusable neglect. FED . R. BANKR . PRO . 9006(b)(1). When determining whether excusable
neglect has been shown, the Fourth Circuit relies on the two-prong test set forth by the Supreme
Court in Pioneer Investment Services v. Brunswick Associates, 507 U.S. 380 (1993). Thompson
v. E.I. DuPont de Nemours & Co., Inc., 76 F.3d 530, 533 (4th Cir. 1996).
To satisfy the first prong of the test, the omission must result from neglect; the second
prong requires that the neglect be “excusable.” Pioneer, 507 U.S. at 388, 395. Neglect is
defined with reference to Webster’s Dictionary as “to leave undone or unattended to especially
through carelessness,” and includes situations where a party misses a deadline through
“inadvertence, miscalculation, or negligence.” Id. at 388. 	In finding that neglect is “excusable”
the court must make an equitable determination taking account of the totality of the
circumstances, including:
the danger of prejudice to the debtor, the length of the delay and its potential impact
on judicial proceedings, the reason for the delay, including whether it was within the
reasonable control of the movant, and whether the movant acted in good faith.
Id. at 395. This “elastic concept” does not require rigid application of these factors, nor does it
render determinative whether the error was caused by circumstances outside the party’s control.
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See id. at 392; Wilmoth, 412 B.R. at 797.
The court finds that the debtor’s failure to schedule the personal injury claim as an
exempt asset resulted from excusable neglect. While it is unclear whether either of the debtor’s
attorneys was informed of the pending litigation, the ineptitude of the debtor’s substitute counsel
taken in combination with the mental infirmity caused by the debtor’s various afflictions and
prescription medications suggests that the omission was an oversight rather than the result of any
fraudulent agenda. Furthermore, although the contours of the debtor’s claim in the class action
suit are not certain, as the debtor himself is unsure how he became part of the class, there is no
indication that the debtor sought the services of an attorney or took any action to initiate the
lawsuit. Likely, he simply failed to opt out of a certified class. Thus, when viewed in
conjunction with the correspondence received by the debtor from the prosecuting attorney, the
debtor’s testimony as to his subjective belief that the claim was a lost cause is credible. In
examining the totality of the circumstances, the court notes that the personal injury settlement is
fully exempt under North Carolina law, such that the debtor received no financial gain by failing
to include the asset on his schedules. Disallowing the exemption at this juncture would deprive
the debtor of an asset that he is otherwise lawfully entitled to and would result in a windfall to
his creditors not sanctioned by the Bankruptcy Code. The court would be inclined to surcharge
the exempt asset for the expenses incurred by the trustee in bringing this action, but the majority
construction of 11 U.S.C. § 522(k) does not permit the court to surcharge an exempt asset for
administrative expenses under circumstances other than those provided by the Code. See
Scrivner v. Mashburn (In re Scrivner) 535 F.3d 1258, 1263-65 (10th Cir. 2008).
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Based on foregoing, the trustee’s objection to the debtor’s amended claim of exemptions
is OVERRULED.
“END OF DOCUMENT”
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