In re Orton

In re Orton, No. 11-4157 (3d Cir. July 20, 2012) (Precedential)
Affirming the Bankruptcy Court and District Court, the Third Circuit Court of Appeals held that under the wildcard exemption in 11 U.S.C. § 522(d)(5), where the debtor exempts only an interest in an asset and not the asset itself, the Estate is entitled to any post-petition appreciation in value of the Estate's assets that surpasses the dollar value exempted. The Third Circuit adopted the reasoning of the Bankruptcy Court and District Court. Orton should have, at the very least, heeded the Schwab court's words and listed the "full" interest in the lease as exempt. Otherwise, Debtor is limited to the listed value of the exemption. It should be noted that, in a footnote, the Circuit Court addressed recent decisions involving a debtor who exempted the "full market value" of an asset, and pointed out that this method did not appear to successfully exempt an asset.
Procedural context:
The Third Circuit AFFIRMED the District Court which AFFIRMED the Bankruptcy Court's ruling that the Trustee could recover any appreciation in value of the Estate's assets beyond the dollar value that was exempted in Debtor's schedules.
Bradley Orton ("Orton" or "Debtor"), filed a voluntary petition for relief under Chapter 7 in January 2011. In Schedule A (real property), Orton listed his one-eighth interest in a parcel of land that is subject to an oil and gas lease, in Schedule B (personal property), Orton listed his one-fourth interest in royalty interest in the oil and gas lease, to which he assigned the fair market value of one dollar ($1), and in Schedule C (exempt property), Orton listed the two aforementioned interests and claimed as exempt the full amount of their value as stated in the schedules, which for the lease was $1. No party filed objections to the exemptions. The Trustee moved to close the case and except Debtor's royalty interest in the lease from abandonment, which would preserve the Trustee's ability to recover any future royalties for the Estate's benefit. Debtor objected to the Trustee's motion to recover future royalties from the lease. Relying upon the recent Supreme Court case, Schwab v. Reilly, 130 S.Ct. 2652 (2010), the Bankruptcy Court and District Court both held that (1) Debtor, by stating a specific dollar amount, exempted only an interest in the oil and gas lease, and (2) Debtor could not pursue the appreciation in value, if any, of the oil and gas lease because he retained only an interest in the lease. In analyzing § 522(d)(5), the Schwab court reasoned that the provision at issue allows the debtor to exempt an "aggregate interest in any property," up to a specified dollar amount, and not the property as a whole. If a debtor intends to exempt an asset, and not just an interest in the asset, the Supreme Court suggested that a debtor list the exempted value as "full market value" or "100% of FMV," and not just a dollar value. The Bankruptcy Court and District Court further stated that the Trustee did not have to object in order to to pursue any appreciation in value of the lease because the value of the exempted interest, $1, was within the statutory limits.
Ambro, Vanaskie and Aldisert

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