In an unusual move, the Supreme Court granted cert
yesterday to consider the petition of a California man who filed a pro se
petition for cert seeking to review the decision of a bankruptcy court to
surcharge his homestead exemption under section 105. No. 12-5196, Law v.
Siegel. The petition for cert and other documents can be found here
courtesy of scotusblog.com.
The case involves a debtor who filed bankruptcy on
January 5, 2004 and claimed that his homestead was subject to two liens which
consumed all of its nonexempt value. The Trustee was skeptical about a second
lien in the name of Lilli Lin and filed an adversary proceeding seeking its
avoidance. After a default judgment was granted, an attorney appeared
representing a Chinese national named Lili Lin. The Trustee also served a Lilli
Lin of Artesia, California who filed a stipulated judgment that she had never
loaned any money to the debtor. Indeed, Lin of California stated that she was
an acquaintance of the Debtor and that he had approached her about concocting a
fake lien on his property. Meanwhile, Lin of China, who did not speak English,
filed declarations in English which supported the Debtor's position and were
similar to his writing style.
The lien was avoided and the property was sold. The
Trustee then sought to "surcharge" the Debtor's homestead exemption
to recover some of his expenses incurred in setting aside the bogus lien. The
Trustee claimed that he had incurred attorney's fees of $456,000, far in excess
of the Debtor's exemption of $75,000. Without citing any legal authority
whatsoever, the Bankruptcy Court surcharged the Debtor's exemption to cover a
portion of the Trustee's costs. In re Law, 401 B.R. 447 (Bankr. C.D.
Cal. 2009) [an enhanced version of this opinion is available to lexis.com
The Ninth Circuit BAP affirmed citing Ninth Circuit
precedent allowing exemptions to be surcharged "when reasonably necessary
to protect the integrity of the bankruptcy process." Law v. Siegel (In
re Law), 2009 Bankr. LEXIS 4542 (9th Cir. BAP 2009) [enhanced version]. The Ninth Circuit affirmed with a
vague reference to discovery sanctions, a factor that had not been mentioned in
either of the lower court opinions. Law v. Siegel (In re Law), 435 Fed.
Appx. 697 (9th Cir. 2011) [enhanced version].
Undeterred, Stephen Law filed a pro se petition in
the Supreme Court and requested permission to proceed in forma pauperis.
The Trustee objected to the petition and the Solicitor General opined that
while it might be appropriate to consider surcharges under section 105, this
was not the right case. Nevertheless, the Supreme Court granted the petition on
June 17, 2013.
To say this grant of cert is remarkable would be an
understatement. The Supreme Court receives over 7,000 petitions for cert each
year, most of which are in forma pauperis petitions (According to
Chief Justice Roberts, 6,160 cases out of a total of 7,713 filed in the 2011
term were IFP cases). So far, the Court has accepted 32 cases for next year,
only three of which are IFP petitions. (Extrapolating this out, the chance of
an IFP case being granted is about one-tenth of one percent). The Court also
tends not to accept many bankruptcy petitions, considering anywhere from one to
four in recent terms. Thus, the probability of accepting an IFP case concerning
bankruptcy is astronomical. Given the vague rationales in the lower courts, it
is hard to guess what the Supreme Court may be thinking. However, here are a
a. The conservatives on the Court want to squelch the use
of sec. 105 to do things that aren't authorized by the literal language of the
b. The Court wants to slap the Ninth Circuit.
c. The Court wants to make a statement about bad debtors.
d. The Court wants to scold Trustees who run up big legal
e. All of the above.
Come this time next year we should know the answer.
more at A Texas Bankruptcy Lawyer's Blog
For more information about LexisNexis
products and solutions connect with us through our corporate site.