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In re Mendoza

United States Bankruptcy Appellate Panel of the Tenth Circuit

February 5, 2019

In re PEDRO MENDOZA and SANDY M. ARMIJO, Debtors.
v.
PHILIP J. MONTOYA, Chapter 7 Trustee, Appellee. PEDRO MENDOZA and SANDY M. ARMIJO, Appellants, In re STEVEN BRIAN DOLLMAN and DARLA SUE DOLLMAN, DEBTORS. STEVEN BRIAN DOLLMAN and DARLA SUE DOLLMAN, Appellants,
v.
PHILIP J. MONTOYA, Chapter 7 Trustee, Appellee.

         Chapter 7

          Appeal from the United States Bankruptcy Court for the District of New Mexico

          Michael E. Lash of Christopher L. Trammell, P.A., Albuquerque, New Mexico for Appellants Pedro Mendoza and Sandy M. Armijo.

          Deborah M. DeMack of the Law Offices of Deborah M. DeMack, Albuquerque, New Mexico for Appellants Steven Brian Dollman and Darla Sue Dollman.

          Bonnie Bassan of Askew & Mazel, LLC, Albuquerque, New Mexico for Appellee Philip J. Montoya, Chapter 7 Trustee.

          Before MICHAEL, ROMERO, and SOMERS, Bankruptcy Judges.

          OPINION

          ROMERO, BANKRUPTCY JUDGE

         We address the appeals of Pedro Mendoza and Sandy Armijo and Steven and Darla Sue Dollman together as both appeals raise an identical legal issue: whether the New Mexico bankruptcy courts properly sustained a Chapter 7 trustee's objections to the amendment of the debtors' bankruptcy schedules.

         In both cases, the bankruptcy courts concluded the general right to amend schedules provided by Federal Rule of Bankruptcy Procedure 1009(a) sets the date the case is closed as the specified period in which the debtors must file amendments to their schedules.[1] As the debtors in these appeals had closed and then reopened their bankruptcy cases, the bankruptcy courts concluded the specified period for amendment as a matter of course had expired and both courts required the debtors to show excusable neglect existed to allow the amendments pursuant to Rule 9006(b). Because we do not read Rule 1009(a)'s language to create a specified period of time as set forth in Rule 9006(b), we REVERSE and REMAND both cases for consideration of whether the debtors properly claimed exemptions through the amended schedules.

         I. Facts

         Although these appeals are taken from two separate bankruptcy cases, the factual background of each is similar. In both cases, the Chapter 7 debtors received a discharge and their cases were closed. Both sets of debtors unknowingly failed to disclose personal injury claims in their schedules and both sets of debtors sought to reopen their cases in order to amend their schedules. Following reopenings, the Chapter 7 trustee objected to the debtors' amended schedules in both cases. Both bankruptcy courts sustained the Chapter 7 trustee's objections on the basis neither set of debtors could show excusable neglect for failing to amend their schedules prior to the closing of the cases.

         a. In re Dollman

         Darla Sue Dollman suffered a personal injury in a Wal-Mart store parking lot when she tripped over a mangled shopping cart corral on December 18, 2012. Mrs. Dollman experienced physical and cognitive injuries as a result of her fall. Mrs. Dollman and her husband, Steven Dollman, filed a Chapter 7 bankruptcy petition on September 18, 2013. The Dollmans did not disclose Mrs. Dollman's injury or any potential cause of action against Wal-Mart in their bankruptcy schedules. The Dollmans received a Chapter 7 discharge on December 30, 2013.

         Two years later, Mrs. Dollman filed a complaint against Wal-Mart in state court on account of her personal injury. In the course of litigation, Wal-Mart's counsel became aware of the bankruptcy case and sought dismissal on the basis Mrs. Dollman was not the valid holder of the personal injury claim. Upon conferring with bankruptcy counsel, the Dollmans filed a motion to reopen their bankruptcy case to amend their claimed exemptions to exempt the personal injury claim. The bankruptcy court granted the motion to reopen on January 24, 2017. The Dollmans immediately amended Schedules A, B, and C to disclose a "Personal injury legal claim"[2] and exempt the personal injury claim pursuant to § 522(d)(11)(D) and (E).[3]

         Philip Montoya was appointed as the Chapter 7 trustee (the "Trustee") in the reopened case on January 25, 2017. The Trustee objected to the Dollmans' amendments to Schedules A, B, and C. The parties waived an evidentiary hearing on the issue and the bankruptcy court issued its memorandum opinion on September 29, 2017.[4] In the opinion, the bankruptcy court concluded Rule 9006(b) required the Dollmans to file a motion to extend the time to amend the schedules and meet the excusable neglect standard before they would be allowed to amend their claimed exemptions. Accordingly, the bankruptcy court struck the amended Schedules A, B, and C and set a deadline for the Dollmans to file a motion to extend the deadline to amend the schedules.

         The Dollmans filed a timely request for an extension of time to amend their schedules pursuant to Rule 9006(b)(1), asserting they acted in good faith and any delay in amending the schedules was excusable based on their attorney's failure to act. The Trustee objected to the request for an extension, arguing the Dollmans could not meet the excusable neglect standard.

         After conducting an evidentiary hearing, the bankruptcy court entered its Memorandum Opinion on March 5, 2018.[5] The bankruptcy court concluded that while neglect may have occurred, the Dollmans did not meet Rule 9006(b)'s excusable neglect standard to amend schedules in a reopened bankruptcy case. The bankruptcy court evaluated the factors provided by the Supreme Court decision Pioneer Investment Services Company. v. Brunswick Associates, [6] concluding that although the Trustee suffered minimal prejudice, the court could not excuse the Dollmans' more than three-year delay in disclosing the personal injury claim. Accordingly, the bankruptcy court denied the motion to extend time to amend Schedules A, B, and C. The Dollmans filed a timely appeal of the order striking their amended schedules and the order denying their request for an extension of time to amend the schedules.

         b. In re Mendoza

         Sandy Armijo suffered a personal injury in an automobile accident when she was rear-ended at a stoplight on August 13, 2014. The at fault driver's automobile insurance company, State Farm Mutual Automobile Insurance Company ("State Farm"), reimbursed Armijo for the cost of repairing her vehicle on October 30, 2014. Armijo sought chiropractic treatment for the personal injuries caused by the accident. Between September 17, 2014 and June 22, 2017, Armijo received a total of ninety-five chiropractic treatments. Armijo paid for forty-five of the treatments out of her own pocket. The chiropractor billed State Farm for the rest.

         On April 20, 2016, Armijo and her then husband, Pedro Mendoza, filed a Chapter 7 bankruptcy petition.[7] Armijo and Mendoza did not list the car accident, injuries, or any potential claims against State Farm in their bankruptcy schedules. The Chapter 7 trustee appointed in the case conducted a § 341 meeting of creditors and filed a report of no distribution to creditors.

         Having received no payment from State Farm, Armijo's chiropractor contacted her regarding its $6, 250.71 bill in May or June 2016. The chiropractor also contacted State Farm regarding the bill on June 1, 2016. After that, State Farm wrote Armijo a letter asking her to contact the company about settlement of her claims.[8] Armijo and Mendoza received a Chapter 7 discharge on July 25, 2016, and the bankruptcy court closed their case on the same day.

         On October 14, 2016, State Farm sent Armijo a settlement agreement and check for $14, 250.71 in settlement of all her claims resulting from the August 13, 2014 accident. Armijo signed the settlement agreement on October 18, 2016. State Farm paid Armijo $8, 000.00 on October 25, 2016, and paid her chiropractor $6, 250.71 directly on October 26, 2016. State Farm sent Armijo and Mendoza's bankruptcy counsel a copy of the settlement agreement and other communications on November 22, 2016.[9]

         After conferring with their bankruptcy counsel, Armijo and Mendoza moved to reopen their bankruptcy case to schedule and exempt the personal injury award for the automobile accident on April 3, 2017. The bankruptcy court granted the motion to reopen and Armijo and Mendoza filed amended Schedules A, B, and C on April 12, 2017. Schedule B lists "$14, 250.71 for accident 8/13/14 caused by Dawn Davis/ State Farm Insurance; subject to chiropractor lien of $6250.71 Net to Sandy Armijo $8000.00 on 10/14/16."[10] Schedule C exempts the $14, 250.71 pursuant to § 522(d)(11)(D). Philip Montoya was also appointed as Chapter 7 trustee in the reopened Mendoza bankruptcy case. The Trustee filed an objection to the amended claim of exemption, arguing the amendment was untimely pursuant to Rule 1009(a).

         The bankruptcy court held a hearing on November 16, 2017, and issued its Opinion and Order Sustaining Trustee's Objection to Debtors' Claim of Exemption on January 31, 2018.[11] The bankruptcy court concluded Rule 9006(b)(1) required Armijo and Mendoza to show excusable neglect in order to amend their schedules in the reopened bankruptcy case. Applying Pioneer, the bankruptcy court concluded Armijo and Mendoza could not show excusable neglect because numerous events in the bankruptcy case should have prompted them to disclose the personal injury claims. As a result, the ...


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