The Supreme Court/The Supreme Court.iso/pc/ascii/1991/91_571/91_571.zd

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SUPREME COURT OF THE UNITED STATES
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No. 91-571
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ROBERT J. TAYLOR, TRUSTEE, PETITIONER v.
FREELAND & KRONZ, WENDELL G.
FREELAND and RICHARD
F. KRONZ
on writ of certiorari to the united states court of
appeals for the third circuit
[April 21, 1992]

  Justice Stevens, dissenting.
  The Court states that it has -no authority to limit the
application of 522(l) to exemptions claimed in good faith.-
Ante, at 6.  It does not deny, however, that it has ample
authority to hold that the doctrine of equitable tolling
applies to the 30-day limitations period in Bankruptcy Rule
4003(b).  In my view, such a result is supported not only
by strong equitable considerations, but also by the common
law, the widespread practice of the bankruptcy courts, and
the text of 522(b).

                            I
  Rule 4003, which is derived from 522(l) of the Code and
in part from former Bankruptcy Rule 403, shifted the

emphasis of the earlier rule, placing the burden on the
debtor to list her exemptions and the burden on the parties
in interest to raise objections.  Rule 4003(b) in particular
fills a gap that remains in 522(l), which is silent as to the
time in which parties in interest must file their objections.
Rule 4003(b) provides for a 30-day period for objections.
Although the adoption of Rule 4003 has furthered the
interest in orderly administration, there is no suggestion
that it was put into effect in order to avoid prejudice to the
debtor.  Thus, there is no identifiable reason why ordinary
tolling principles that apply in other contexts should not
also apply in bankruptcy proceedings; indeed, the generally
equitable character of bankruptcy makes it especially
appropriate to apply such rules in this context.
  It is familiar learning that the harsh consequences of
federal statutes of limitation have been avoided at times by
relying on either fraudulent concealment or undiscovered
fraud to toll the period of limitation.  For example, in Bailey
v. Glover, 21 Wall. 342, 349-350 (1875), the Court described
two situations in which the -strict letter of general statutes
of limitation- would not be followed.  Id., at 347.  The first
situation is -where the ignorance of the fraud has been
produced by affirmative acts of the guilty party in conceal-
ing the facts,- and the second is -where the party injured by
the fraud remains in ignorance of it without any fault or
want of diligence or care on his part.-  Id., at 347-348.  The
former involves fraudulent concealment; the latter defines
undiscovered fraud.  The Court concluded in Bailey that
fraudulent concealment, which was at issue in that case,
tolls the running of the statute of limitation when the fraud
-has been concealed, or is of such character as to conceal
itself.-  Id., at 349-350.  To hold otherwise, reasoned the
Court, would -make the law which was designed to prevent
fraud the means by which it is made successful and secure.-
Id., at 349.  In Holmberg v. Armbrecht, 327 U. S. 392, 397
(1946), the Court extended the reach of this tolling doctrine
when it observed that it is to be -read into every federal
statute of limitation.-
  In this case, even if there was no fraud, and even if it is
assumed that the trustee failed to exercise due diligence, it
remains true that the parties injured by the trustee's
failure to object within the 30-day period are innocent
creditors.  Moreover, it is apparently undisputed that there
was no legitimate basis for the claim of an exemption for
the entire award.  See ante, at 4.  Under these circumstanc-
es, unless the debtor could establish some prejudice caused
by the trustee's failure to object promptly, I would hold that
the filing of a frivolous claim for an exemption is tanta-
mount to fraud for purposes of deciding when the 30-day
period begins to run.
                           II
  This, in essence, is also the position adopted by numerous
bankruptcy courts and three Courts of Appeals.  Over a
period of years, they have held that the failure to make a
timely objection is not dispositive, Rule 4003(b) notwith-
standing.  For example, in In re Hackett, 13 B.R. 755, 756
(Bkrptcy. Ct. ED Pa. 1981), the court explained that
-[e]quitable considerations dictate that a debtor should not
be allowed exemptions to which she is obviously not
entitled.-  This view was echoed in In re Rollins, 63 B.R.
780, 783-784 (Bkrptcy. Ct. ED Tenn. 1986):  -[T]he debtor
cannot make property exempt simply by claiming it as
exempt when there is no apparent legal basis for the
exemption.  In that situation, the trustee's failure to object
to the claim of exemption within the time limit of Rule
4003(b) does not create an exemption.-  More recently, the
court in In re Ehr, 116 B.R. 665, 667 (Bkrptcy. Ct. ED Wis.
1988), reaffirmed this approach, as did the court in In re
Staniforth, 116 B.R. 127, 130 (Bkrptcy. Ct. WD Wis. 1990).
As one court explained:  -Read strictly, Rule 4003 and
Section 522(l) support appellants' position concerning
waiver.  But, most courts have not followed appellants'
interpretation of these provisions.  Instead, most courts
hold that an exemption must have an apparent legal basis
for an exemption to overcome an untimely objection.-  In re
Stutterheim, 109 B.R. 1010, 1012 (Kan. 1989).
  The equitable principles that motivated these bankruptcy
courts are best encapsulated by the court in In re Bennett,
36 B.R. 893 (Bkrptcy. Ct. WD Ky. 1984).  There, the court
explained that to apply Rule 4003(b) rigidly would be to
encourage a debtor to claim that all of her property was
exempt, thus leaving it to the trustee and creditors to sift
through the myriad claimed exemptions to assess their
validity.  Such a policy would result in reversion to -the law
of the streets, with bare possession constituting not nine,
but ten, parts of the law; orderly administration of estates
would be replaced by uncertainty and constant litigation if
not outright anarchy.-  Id., at 895.
  Although several Courts of Appeals and bankruptcy
courts did not go as far as these courts, preferring instead
in the case of an untimely objection to examine a claimed
exemption to determine if there was a -good-faith statutory
basis- for the exemption, they nevertheless eschewed the
literal reading of the statute and rule adopted by the Court
today.  They did so because they believed it was important
to strike a proper balance between avoiding the undesirable
effect of -exemption by declaration- and yet not permitting
a trustee -another bite at the debtor's apple where the
debtor has claimed certain property exempt in good faith.-
In re Peterson, 920 F. 2d 1389, 1393-1394 (CA8 1990); see
In re Sherk, 918 F. 2d 1170, 1174 (CA5 1990); In re Dembs,
757 F. 2d 777, 780 (CA6 1985).
  Here, the trustee would succeed under either approach.
Whether the court is always permitted to entertain an
objection to a claimed exemption (at least until the case is
closed) when the claimed exemption is invalid or whether
the court can do so only if the claimed exemption lacks a
good-faith statutory basis, would mean that in this case the
court could review the debtor's claimed exemption.  Here,
the parties acknowledge that the debtor could not claim a
statutory basis for her claimed exemption for the full award
because neither backpay nor tort recovery is exempt under
522(d)(5).
                           III
  The practice of these lower courts has been motivated not
only by equitable considerations, but also by the require-
ment set forth in 522(b).  Section 522(l) explicitly provides
that -[t]he debtor shall file a list of property that the debtor
claims as exempt under subsection (b) of this section.-
Subsection (b) limits exemptions claimed by the debtor to
-any property that is exempt under federal law . . . or State
or local law that is applicable on the date of the filing of the
petition.-  11 U. S. C. 522(b)(2)(A).  When a debtor claims
exemptions that do not even arguably satisfy this condi-
tion, there is good reason to hold that the filing does not
comply with 522 and therefore the 30-day objection period
does not begin to run.  As one court noted, -[i]f Debtor may
select in any manner her exemptions, then no purpose is
served by the inclusion of the . . . terms.-  In re Kingsbury,
124 B.R. 146, 148, n. 9 (Bkrptcy. Ct. Maine 1991).  It
declined to conclude that Congress added the requirements
that the property be exempted -under federal law . . . or
state law or local law- but -refused to grant them meaning.-
Ibid.  (Emphasis omitted.)

                           IV
  The Court's disposition of this case is straightforward.
Because it regards the meaning of the statute and rule as
-plain,- that is the end of the case.  I have no doubt,
however, that if the debtor or the trustee were guilty of
fraud, the Court would readily ignore what it now treats as
the insurmountable barrier of -plain meaning.-  The
equities in this case are not as strong as if fraud were
implicated, but our power to reach a just result despite the
-plain meaning- barrier is exactly the same as it was in
Bailey v. Glover, 21 Wall. 342 (1875).  Here, as in Bailey,
we should be guided by the common-law principles that
have supported the tolling of other statutes of limitation,
and, in addition, by the experience of bankruptcy courts
that have recognized the need for a similar rule to achieve
both equitable results and fair administration in cases of
this kind.  In my view, it is a mistake to adopt a -strict
letter- approach, id., at 347, when justice requires a more
searching inquiry.  Accordingly, I respectfully dissent.