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Opinions – 4th U.S. Circuit Court of Appeals: 7/5/11

Bankruptcy Law

Judicial lien

BOTTOM LINE: Under Bankruptcy Code, debtor filing for Chapter 7 bankruptcy need not claim an exemption as a precondition of avoiding a judicial lien on the basis that a lien impairs exemption.

CASE: Botkin v. Dupont Community Credit Union, No. 10-1681 (decided June 13, 2011) (Judges TRAXLER, Gregory & Davis). RecordFax No. 11-0613-60, 10 pages.

FACTS: Annie Botkin owned residential property in Highland County, Virginia, with a market value of $22,500. A purchase money deed of trust in favor of First and Citizens Bank encumbered the property and secured an outstanding loan balance of approximately $24,124. The property was also encumbered by a $9,800 judicial lien held by DuPont Community Credit Union.

On August 13, 2009, Botkin filed a voluntary petition for Chapter 7 bankruptcy relief. In conjunction with her filing, she recorded a homestead deed in circuit court. On September 22, 2009, the bankruptcy trustee conducted a meeting of Botkin’s creditors and subsequently reported that the estate had been fully administered and that there was no property available for distribution from the estate over and above that exempted by law.

In October 2009, Botkin filed a motion to avoid DuPont’s judicial lien under 11 U.S.C.A. §522(f), which provides that a debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled, if such lien is a judicial lien. Although DuPont failed to file a response by the deadline the bankruptcy court had set, the court denied Botkin’s motion on the basis that Botkin had not claimed an exemption in the property subject to the lien. Botkin appealed to the district court, which reversed the bankruptcy court’s decision and remanded the case to the bankruptcy court for further proceedings.

Dupont appealed to the 4th Circuit, which affirmed the district court’s reversal of the bankruptcy court’s decision.

LAW: This appeal presented a question regarding the appropriate statutory interpretation of the Bankruptcy Code. A bankruptcy estate comprises all the legal and equitable interests in property that a debtor possesses at the time of filing, as well as the interests that are recovered or recoverable via transfer and lien-avoidance provisions. See 11 U.S.C.A. §541 (West 2004 & Supp.2010). To help the debtor achieve a “fresh start,” the Code exempts certain property from the bankruptcy estate. See 11 U.S.C.A. §522 (West 2004 & Supp.2010). The Code allows a debtor to choose between specified federal exemptions or those provided by state law, unless state law provides, as Virginia’s does, that only the state exemptions are available. See 11 U.S.C.A. § 522(b).

The Code requires a debtor to file a list of the property claimed to be exempt from the bankruptcy estate. See 11 U.S.C.A. §522. In addition to the right to exempt certain property from the bankruptcy estate, debtors also, under 11 U.S.C.A. §522(f), can move to avoid, or wipe out, a lien or interest that a creditor has in particular property. Pursuant to 11 U.S.C.A. §522(f)(1), a debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is a judicial lien. It was this right that was the subject of the present appeal.

Here, DuPont argued that the district court erred by concluding that a debtor can avoid a judicial lien under §522(f) without having already claimed an exemption in the property subject to the lien. However, the Code plainly provides that debtors need not claim an exemption as a precondition of avoiding a lien that the debtor contends impairs that exemption. Thus, the district court was correct in concluding that a debtor is not required to list her property as exempt in order to avoid a judicial lien that is impairing that exemption.

Accordingly, the district court’s reversal of the bankruptcy court’s denial of Botkin’s motion to avoid DuPont’s judicial lien was affirmed.

Civil Procedure

Attorney’s fees

BOTTOM LINE: The amount of an offer of judgment in a civil rights suit did not include costs or attorney’s fees, despite claims that the offer unambiguously indicated it covered all claims contained in the complaint and the award of attorney’s fees and costs was part of the substantive relief sought.

CASE: Bosley v. Mineral County Commission, No. 10-1203 (decided June 14, 2011) (Judges Traxler, Gregory & DAVIS). RecordFax No. 11-0614-60, 12 pages.

FACTS: In August 2005, after a period of increasingly aggressive and peculiar behavior by her estranged husband, Dr. James Bosley, Brenda Bosley filed a mental hygiene complaint attesting that he was suicidal and a danger to others. When West Virginia state troopers arrived at Dr. Bosley’s residence to take him into custody for a psychiatric examination, Dr. Bosley managed to sprint away from the officers, retreat into an interior room and slam the door behind him, whereupon he obtained a firearm and then shot and killed himself.

Brenda Bosley subsequently filed an action in state court, asserting numerous state-law claims and several federal constitutional claims pursuant to 42 U.S.C. §1983. Among those Bosley named as defendants were the Mineral County Commission, Paul Sabin (Chief Deputy of the Mineral County Sheriff’s Office), and Craig Fraley (Sheriff). The defendants removed the case to federal district court on the basis of federal question jurisdiction, and in due course, all defendants filed motions for summary judgment.

While the motions were pending before the district court, the Mineral County Commission, Sabin and Fraley served an offer of judgment in the amount of $30,000 pursuant to Fed.R.Civ.P. 68(a) on Brenda Bosley, which she accepted. The offer of judgment did not mention costs or attorney’s fees. Meanwhile, the district court granted summary judgment in favor of two of the other defendants. As the offer of judgment had been accepted, the district court denied as moot the motion filed by Mineral County Commission, Fraley and Sabin.

Thereafter, the clerk of court having failed to enter the judgment, Brenda Bosley moved the district court to enter judgment against defendants Mineral County Commission, Fraley and Sabin in the sum of $30,000, with costs, including attorney’s fees, accrued as of the date of service of the offer of judgment. The three defendants opposed the motion on the ground that the $30,000 sum was inclusive of attorney’s fees and costs. The district court determined that the plain language of Rule 68 required it to award Brenda Bosley her costs, including attorney’s fees, and entered judgment in favor of Brenda Bosley in the amount of $30,000 and directed her to file an application for attorney’s fees and costs.

Brenda Bosley then filed a timely motion for an award of attorney’s fees and costs, seeking $120,702. The district court granted her motion in part, awarding attorney’s fees in the amount of $55,331 and costs in the amount of $11,132, for a total of $66,463 in fees and costs. The three defendants appealed to the 4th Circuit, which affirmed the decision of the district court.

LAW: The Supreme Court has considered the effect of Rule 68 in conjunction with a fee-shifting statute. See Marek v. Chesny, 473 U.S. 1 (1985). The Marek Court found that a plaintiff who prevails in a §1983 action may, in the court’s discretion, obtain a reasonable attorney’s fee as part of her costs. The Court elaborated that if an offer recites that costs are included or specifies an amount for costs, and the plaintiff accepts the offer, the judgment will necessarily include costs; if, however, the offer does not state that costs are included and an amount for costs is not specified, then the court will be obliged by the terms of the Rule to include in its judgment an additional amount which in its discretion it determines to be sufficient to cover the costs.    In this case, although the offer of judgment did not mention costs or attorney’s fees, the three defendants could easily have drafted a Rule 68 offer either reciting that recoverable costs were included in the sum or specifying an amount for such costs. However, they failed to do so. When a Rule 68 offer of judgment is silent as to costs, a court faced with such an offer that has been timely accepted is obliged by the terms of the rule to include in its judgment an amount above the sum stated in the offer to cover the offeree’s costs. Marek, 473 U.S. at 6. Attorney’s fees under 42 U.S.C. §1988 qualify as Rule 68 costs because the statute defines those fees as costs. Id. at 9. Thus, because the offer in this case did not indicate that recoverable costs were included, the district court was required by Rule 68 to include an additional amount in its judgment for such costs.

Accordingly, the judgment of the district court was affirmed.