In re Gardner

In re: KAY LOUISE GARDNER and MARVIN KENNETH GARDNER, JR., Debtors.

Case No. 12-12485 HRT

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLORADO

Dated July 19, 2013

Honorable Howard R. Tallman

Chapter 7

ORDER ON OBJECTION TO CLAIMS OF EXEMPTION

This case comes before the Court on John Rudisill and Rudisill, Gardner and Zeman, P.C.'s (collectively, "Rudisill") Objection to Debtors' Amended Claims of Exemption (docket #63) (the "Objection").

The Court held a hearing on the Objection on October 22, 2012, and on November 19, 2012. Thereafter, the parties filed written closing statements, and the court took the matter under advisement. The Court has considered the evidence and arguments presented by the parties and is ready to rule.

Rudisill objects to the following exemptions claimed by the Debtors on their bankruptcy schedules:

a. Gardner & Co. General Partnership Account

a) value of property: $3,053.00

b) value of claimed exemption: $2,289.75

c) law providing for exemption: CRS §§ 5-5-105 & 13-54-104

b. Professional Practice Equipment

a) value of property: $5,132.00

b) value of claimed exemption: $5,132.00

c) law providing for exemption: CRS § 13-54-102(1)(i)

c. Retirement Accounts - LPL Financial

a) value of property: $205,163.00

b) value of claimed exemption: $205,163.00

c) law providing for exemption: CRS § 13-54-102(1)(s)

d. Retirement Accounts - LPL Financial

a) value of property: $151,542.00

b) value of claimed exemption: $151,542.00

c) law providing for exemption: CRS § 13-54-102(1)(s)e. Optum Health Bank Account - Health Savings Account

a) value of property: $2,027.75.

b) value of claimed exemption: $2,027.75

c) law providing for exemption: CRS § 13-54-102(1)(s)

I. FACTS

1. The Debtors filed their petition under chapter 7 on February 15, 2012. Rudisill is a judgment creditor of the Debtors.

2. In 2010, Rudisill purchased the Debtors' accounting practice. The Debtors' company, Gardner & Zeman, P.C., received sales proceeds of $364,788.45, and Gardner & Zeman distributed $325,000.00 to the Debtors by depositing that amount to the Debtors' joint brokerage account held by LPL Financial.

3. A dispute arose concerning the Debtors' sale of their accounting practice to Rudisill. The dispute was the subject of an arbitration proceeding held in 2011. An interim award was made on November 23, 2011, and the final arbitration award was made on January 17, 2012. An Order of Judgment in favor of Rudisill was made in the District Court, Boulder County, Colorado, on February 13, 2012, in the amount of $486,487.48. Two days later, this chapter 7 bankruptcy case was filed.

4. In December, 2011, following entry of the interim arbitration award, the Debtors caused their successor entity, Gardner and Co., P.C., to set up new 401(k) accounts for each of them.

5. The following deposits were made to the Debtors' 401(k) accounts during the period following entry of the interim arbitration award and prior to entry of the final judgment and filing of the bankruptcy petition:

Kenneth Gardner's LPL Financial 401(k) Account #****-6477

+-----------------------------------------------------------------------------+
¦Amount of      ¦Date     ¦Source of Funds                                    ¦
¦Deposit        ¦         ¦                                                   ¦
+---------------+---------+---------------------------------------------------¦
¦$28,664.50     ¦12/15/   ¦check from LPL Financial joint brokerage account # ¦
¦               ¦2011     ¦****-8213                                          ¦
+---------------+---------+---------------------------------------------------¦
¦$17,000.00     ¦1/5/2012 ¦check from LPL Financial joint brokerage account # ¦
¦               ¦         ¦****-8213                                          ¦
+-----------------------------------------------------------------------------+

+-----------------------------------------------------------------------------+
¦$5,500.00 ¦1/5/   ¦check from LPL Financial "Ken's Cash Account" #****-8778  ¦
¦          ¦2012   ¦                                                          ¦
+----------+-------+----------------------------------------------------------¦
¦$2,400.00 ¦2/2/   ¦transfer from LPL Financial "Ken's Cash Account" #        ¦
¦          ¦2012   ¦****-8778                                                 ¦
+----------+-------+----------------------------------------------------------¦
¦$2,600.00 ¦2/3/   ¦check from Gardner and Co., P.C., High Country Bank       ¦
¦          ¦2012   ¦account #*****5909                                        ¦
+----------+-------+----------------------------------------------------------¦
¦$56,164.50¦Total  ¦                                                          ¦
+-----------------------------------------------------------------------------+

Kay Gardner's LPL Financial 401(k) Account #****-2033

+-----------------------------------------------------------------------------+
¦Amount of     ¦Date     ¦Source of Funds                                     ¦
¦Deposit       ¦         ¦                                                    ¦
+--------------+---------+----------------------------------------------------¦
¦$29,929.43    ¦12/15/   ¦check from LPL Financial joint brokerage account#   ¦
¦              ¦2011     ¦****-8213                                           ¦
+--------------+---------+----------------------------------------------------¦
¦$17,000.00    ¦1/5/2012 ¦check from LPL Financial joint brokerage account#   ¦
¦              ¦         ¦****-8213                                           ¦
+--------------+---------+----------------------------------------------------¦
¦$5,500.00     ¦1/9/2012 ¦check from LPL Financial "Ken's Cash Account" #     ¦
¦              ¦         ¦****-8778                                           ¦
+--------------+---------+----------------------------------------------------¦
¦$5,000.00     ¦2/3/2012 ¦check from High Country Bank personal joint account ¦
¦              ¦         ¦#*****8505                                          ¦
+--------------+---------+----------------------------------------------------¦
¦$57,429.43    ¦Total    ¦                                                    ¦
+-----------------------------------------------------------------------------+

6. The Gardner and Co., P.C., W-2 reconciliation for 2011 reflects that Gardner and Co. made retirement contributions in the amount of $22,000.00 for each of the Debtors for that year and that Kenneth Gardner received taxable wages of $4,658.00 and Kay Gardner received taxable wages of $9,717.73.

7. 2012 W-2 forms prepared by Gardner and Co., P.C., reflect that Gardner and Co. made retirement contributions in the amount of $22,500.00 for each of the Debtors. The same W-2 forms reflect taxable wages in the amount of $1,347.38 for each of the Debtors.

8. Gardner and Co., P.C., was only in existence through February 1, 2012. On that date, Kay Gardner electronically filed Articles of Dissolution with the Colorado Secretary of State.

9. Kenneth Gardner's LPL Financial statement for his 401(k) account #****-6477, for the month of December, 2011, reflects a balance of $0.00 at the beginning of the month and deposits during the month of $28,664.50. The deposits are broken down as a "2011 Employer Contribution" of $6,664.50 and a "2011 Employee Contribution" of $22,000.00.

10. Kay Gardner's LPL Financial statement for her 401(k) account #****-2033, for the month of December, 2011, reflects a balance of $0.00 at the beginning of the month and deposits during the month of $29,929.43. The deposits are broken down as a "2011 Employer Contribution" of $7,929.43 and a "2011 Employee Contribution" of $22,000.00.

11. Kenneth Gardner's LPL Financial statement for his 401(k) account #****-6477, for the month of January, 2012, reflects a balance of $28,664.58 at the beginning of the month and deposits during the month of $22,500.00. The deposits are denominated as "2012 Employee Contributions."

12. Kay Gardner's LPL Financial statement for her 401(k) account #****-2033, for the month of January, 2012, reflects a balance of $29,929.51 at the beginning of the month and deposits during the month of $22,500.00. The deposits are denominated as "2012 Employee Contributions."

13. Kenneth Gardner's LPL Financial statement for his 401(k) account #****-6477, for the month of February, 2012, reflects a balance of $50,747.63 at the beginning of the month and deposits during the month of $5,000.00. The deposits are denominated as "2012 Employer Contributions."

14. Kay Gardner's LPL Financial statement for her 401(k) account #****-2033, for the month of February, 2012, reflects a balance of $52,010.42 at the beginning of the month and a deposit during the month of $5,000.00. The deposit is denominated as a "2012 Employer Contribution."

II. DISCUSSION

A. Rudisill Has Standing to Object to the Debtors' Claimed Exemptions

Unless a "party in interest" objects to the exemptions claimed by a debtor "the property claimed as exempt . . . is exempt." 11 U.S.C. § 522(l). See also In re Scrivner, 535 F.3d 1258, 1264 (10th Cir. 2008). Debtors argue that Rudisill is not a party in interest entitled to object to their exemption claims.

The term, "party in interest" is ubiquitous in the Bankruptcy Code. The term is used to designate who may move the Court for relief or to challenge another's right to relief in various contexts. "[T]he term 'is generally understood to include all persons whose pecuniary interests are directly affected by the bankruptcy proceedings.'" In re Hutchinson, 5 F.3d 750, 756 (4th Cir. 1993) (quoting White County Bank v. Leavell (In re Leavell), 141 B.R. 393, 399 (Bankr. S.D. Ill. 1992)). Because Rudisill is the holder of a final state court judgment against the Debtors and their company, Rudisill is indisputably a creditor in this bankruptcy proceeding. Subject to the priorities specified in 11 U.S.C. § 507, creditors in a bankruptcy liquidation under chapter 7...