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In re Shannon

March 25, 2010


The opinion of the court was delivered by: Lawrence P. Zatkoff United States District Judge

Hon. Lawrence P. Zatkoff

Bankruptcy Case No. 09-40867

Hon. Steven W. Rhodes


AT A SESSION of said Court, held in the United States Courthouse, in the City of Port Huron, State of Michigan, on the day of March, 2010



This matter is before the Court on Acclaim Legal Services, P.L.L.C.'s ("Acclaim") Appeal from the Order Regarding Amended Motion to Turnover (Docket #1) entered by Steven W. Rhodes, a Judge for the U.S. Bankruptcy Court for the Eastern District of Michigan ("Bankruptcy Court"). David W. Allard, the Chapter 7 Trustee of the debtor's bankruptcy estate (the "Trustee"), filed a response, and Acclaim filed a reply. The Court finds that the facts and legal arguments pertinent to the Motion are adequately presented in the parties' papers, and the decision process will not be aided by oral arguments. Therefore, pursuant to E.D. Mich. Local R. 7.1(e)(2), it is hereby ORDERED that the Motion be resolved on the briefs submitted, without this Court entertaining oral arguments. For the reasons set forth below, Acclaim's Appeal is DENIED.


Yong Mi Shannon ("Debtor") filled a voluntary petition for relief under Chapter 7 of the Code on January 14, 2009. Debtor's original schedules failed to disclose and exempt her 2008 federal and state tax refunds for wages earned pre-petition. The first meeting of creditors was held on February 11, 2009, before the Trustee. At that first meeting of creditors, the Trustee questioned Debtor regarding her right to receive tax refunds based on her pre-petition income withholdings. Debtor indicated that she had not yet prepared her tax returns. Debtor further indicated that she would possibly be receiving tax refunds, would promptly file her 2008 federal and State of Michigan tax returns and would provide copies of the same to the Trustee. Acclaim, Debtor's counsel, was present during the first meeting of creditors on behalf of Debtor and assisted Debtor in answering the Trustee's questions.

Debtor prepared and filed her tax returns sometime shortly after the first meeting of creditors. On February 19, 2009, just eight days after the first meeting of creditors, Debtor received her federal tax refund in the amount of $3,374.00, and on March 10, 2009, Debtor received her State of Michigan tax refund in the amount of $353.00. Despite Debtor having filed her tax returns and received refunds, Debtor's counsel failed to provide the Trustee with copies of Debtor's tax returns. Debtor's counsel claims that the tax returns were forwarded to the Trustee's office on several occasions, but Debtor's counsel has been unable to provide any documentation substantiating these claims.*fn1

By written letter dated March 20, 2009, the Trustee requested turnover of Debtor's 2008 income tax refunds because Debtor had not exempted any 2008 tax refunds. In that letter, the Trustee also sought concurrence in a motion for turnover of the tax refunds in accordance with E.D. Mich. L.B.R 9014-1(g). Acclaim did not respond to the Trustee's written letter, nor were Debtor's tax refunds turned over to the Trustee. On May 15, 2009, the Trustee filed a motion for turnover of Debtor's tax refunds. The Trustee's motion was amended on May 26, 2009, to also request turnover of copies of Debtor's 2008 federal and state tax returns. Debtor filed her response on June 10, 2009, and the Bankruptcy Court scheduled a hearing on the Trustee's amended motion for June 29, 2009 (the "Turnover Hearing"). On June 19, 2009, Debtor filed amended schedules B and C, which, for the first time, disclosed to the Bankruptcy Court her 2008 federal and 2008 State tax returns and tax refunds. Debtor sought to exempt the same, pursuant to 11 U.S.C. §522(d)(5), in the total amount of $9,695.00.

At the Turnover Hearing, the Trustee advised the Bankruptcy Court of the recently amended schedules and informed the Bankruptcy Court that the Trustee anticipated filing an objection to those amendments. The Trustee sought an adjournment of the Turnover Hearing until the Trustee could file its objection to Debtor's amended claims of exemption. The Trustee explained that a ruling for Debtor on the exemption issue could result in a withdrawal of the Trustee's motion for turnover. The Bankruptcy Court thereafter questioned Debtor and her counsel regarding the filing of her tax returns, her receipt of tax refunds, and the reasons they were not listed as a contingent asset on Debtor's bankruptcy schedules when she had admittedly received comparable refunds in prior years.*fn2

The attorney appearing on behalf of Acclaim at the Turnover Hearing, Ryan Beach ("Beach"), stated that the tax refunds were "somewhat of an unknown." Beach further claimed he was only speculating because he was not the individual who prepared Debtor's petition. The Bankruptcy Court responded that this situation "is a continuation of the sloppiness of practice in [Acclaim's] office." The Bankruptcy Court then stated: "I'm going to order your office to turn over to the Trustee the amount of the refund. And then if the exemption is allowed, we'll give it back to you. If the exemption is disallowed, I'm going to surcharge it to your office for sloppy practice." On June 29, 2009, the Bankruptcy Court entered a corresponding order requiring Acclaim to "pay to the office of the chapter 7 trustee the ...

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