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In Re: Bradley R. Orton

July 20, 2012

IN RE: BRADLEY R. ORTON, APPELLANT


On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civil Action No. 2-1-cv-00921) District Judge: Honorable Terrence F. McVerry

The opinion of the court was delivered by: Aldisert, Circuit Judge.

PRECEDENTIAL

Argued June 21, 2012

Before: AMBRO, VANASKIE and ALDISERT, Circuit Judges.

OPINION OF THE COURT

Debtor Bradley Orton appeals from an order by the United States District Court for the Western District of Pennsylvania, which affirmed the United States Bankruptcy Court for the Western District of Pennsylvania‟s judgment. Construing the wildcard exemption in 11 U.S.C. § 522(d)(5), those courts held that the Trustee for the Estate, not the Debtor, is entitled to any post-petition appreciation in value of the Estate‟s assets that surpasses the dollar amount exempted. The Bankruptcy Court and the District Court reasoned that Orton had exempted only an interest in an asset, rather than the asset itself, and thus was entitled to merely the dollar amount listed as exempt in Schedule C accompanying his bankruptcy petition and not to any future appreciation in value. Applying the teachings of the Supreme Court‟s decision in Schwab v. Reilly, 130 S. Ct. 2652 (2010), we will affirm.

I.

The facts, insofar as they concern us here, are few. Orton filed an emergency voluntary petition for relief under Chapter 7 of the Bankruptcy Code in January 2011 and filed his required Schedules and statements shortly thereafter. This appeal concerns two of Orton‟s claimed exemptions. On Schedule A (real property), Orton listed his one-eighth interest in 34 acres of vacant land that is subject to an oil and gas lease. Orton stated that the fair market value of the entire parcel was $34,000 and claimed an exemption for $4,250, one-eighth of the value of the whole. On Schedule B (personal property), Orton listed his one-fourth interest in royalty interest in the oil and gas lease, to which he assigned a fair market value of one dollar. Orton noted on Schedule B that no well has been drilled on the property and that no royalties are currently due. On Schedule C (property claimed as exempt), Orton claimed wildcard exemptions for these two interests, pursuant to 11 U.S.C. § 522(d)(5), and claimed as exempt the full amount of their value from Schedules A and B-$4,250 and $1.

No party filed objections to these exemptions within the 30-day period prescribed by Rule 4003(b), Federal Rules of Bankruptcy Procedure. The Trustee then filed a motion to close the case and to except Orton‟s royalty interest in the oil and gas lease from abandonment, thereby preserving her ability to recover any future royalties for the benefit of the Estate in the event that a well were ever drilled on the property. Orton agreed to close the case, but he objected to the Trustee‟s efforts to except the royalty interest from abandonment. Orton contended that because (a) the royalty interest was subsumed in his real property interest, (b) he had claimed the full, fair market value for each, and (c) no party had objected to his list of exemptions, he had successfully and permanently removed those assets from the Estate, thereby securing for himself the benefits and risks of future ap- or depreciation, free from any creditors‟ claims.

After a hearing, the Bankruptcy Court issued a Memorandum and Order on May 20, 2011, rejecting Orton‟s arguments. The Court held that the Trustee was entitled to pursue any future increase in value of the oil and gas lease above the amount explicitly stated as exempt in Schedule C.

On October 14, 2011, the District Court for the Western District of Pennsylvania affirmed the Order of the Bankruptcy Court. After examining the Supreme Court‟s opinion in Schwab v. Reilly, 130 S. Ct. 2652 (2010), the District Court adopted the Bankruptcy Court‟s reasoning in full. Orton timely appealed.

II.

The Bankruptcy Court had subject matter jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(1). The District Court had jurisdiction to review the Bankruptcy Court‟s order pursuant to id. § 158(a)(1). We have subject matter jurisdiction pursuant to id. § 1291. On an appeal from a bankruptcy case, our review "duplicates that of the district court and view[s] the bankruptcy court decision unfettered by the district court‟s determination . . . ." In re Graves, 33 F.3d 242, 246 (3d Cir. 1994). Accordingly, we apply a clearly erroneous standard ...


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