Gary E. Peel v. Deborah Peel

In the
United States Court of Appeals
For the Seventh Circuit
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No. 13-1547
IN RE GARY E. PEEL,
Debtor-Appellant.
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Appeal from the United States District Court for the
Southern District of Illinois.
No. 3:12-cv-00573-GPM — G. Patrick Murphy, Judge.
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SUBMITTED JUNE 26, 2013 — DECIDED AUGUST 2, 2013
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Before POSNER, FLAUM, and TINDER, Circuit Judges.
POSNER, Circuit Judge. The appellant, Gary Peel, is serving
a prison sentence for bankruptcy fraud and possession of
child pornography. 18 U.S.C. §§ 152(6), 2252A(a)(5)(B). See
United States v. Peel, 668 F.3d 506 (7th Cir. 2012); United States
v. Peel, 595 F.3d 763 (7th Cir. 2010). He is also in bankruptcy
court. His appeal challenges two rulings in his bankruptcy
proceeding: the striking of his filings and permitting the
trustee in bankruptcy to transfer an annuity owned by Peel
to his ex-wife Deborah.
Gary and Deborah had divorced in 2003 and agreed to a
marital settlement. Regarding an annuity that Gary had
2 No. 13-1547
bought that was to pay him $200 per month till his death,
they agreed that the marital settlement required him to pay
her “$200 per month…in lieu of her interest in [the annui-
ty].” The effect was to award the entire annuity income to
Deborah, while the annuity itself remained Gary’s property.
Two years after the marital settlement Gary filed for
bankruptcy under Chapter 7 of the Bankruptcy Code (liqui-
dation) and asked the bankruptcy court to discharge the fi-
nancial obligations to his ex-wife that the settlement had im-
posed. She opposed the discharge and filed a claim for the
money that he owed her under the settlement. He responded
by blackmailing her with nude photos of her sister as a child
in an effort to convince her to drop the claim. His criminal
convictions arise from the blackmail attempt, which failed.
Deborah and the bankruptcy trustee agreed that her
claim against the debtor’s estate in bankruptcy was an unse-
cured claim for $158,455.63. The bankruptcy judge approved
the agreement. Included in the claim was $12,400 represent-
ing 62 $200 monthly payments that the trustee had received
from the insurance company that had issued the annuity.
Since Gary owned the annuity, these payments became part
of the estate in bankruptcy. Their inclusion in her claim of
the $12,400 was therefore a mistake. A claim in bankruptcy
is a creditor’s “right to payment” from the debtor, 11 U.S.C.
§ 101(5)(A); the annuity payments received by the trustee
were assets of the estate in bankruptcy, not debts, because
they were the debtor’s property.
Even if the trustee was meaning to refer not to the
$12,400 in annuity payments received by Gary’s estate but to
the “in lieu of” payments that Gary was obligated by the
marital settlement to make to Deborah, their inclusion in her
No. 13-1547 3
claim still was improper. The Bankruptcy Code limits a
claim against an ex-spouse’s estate in bankruptcy for unpaid
domestic support (alimony, child support, or any other
maintenance obligation) to support that was due the ex-
spouse no later than when the bankruptcy petition was filed.
11 U.S.C. § 502(b)(5); 4 Collier on Bankruptcy ¶ 502.03[6][a],
pp. 502-41 to 502-42 (Alan N. Resnick & Henry J. Sommer
eds., 16th ed. 2012). All the monthly payments that made up
the $12,400 had become payable after Gary filed for bank-
ruptcy, and so Deborah could collect those debts only from
Gary personally. 11 U.S.C. § 502(b)(5). (There is no sugges-
tion that the debts could be administrative expenses of the
bankruptcy.) But Gary’s appeal does not challenge the inclu-
sion of the $12,400 in Deborah’s claim in bankruptcy, so we
shall not order it excluded.
Later the trustee moved the bankruptcy judge to permit
him to transfer to Deborah $1000 in annuity payments that
he had collected since settling her bankruptcy claim, and to
direct the insurance company to make the future payments
of $200 a month to her directly. The trustee reasoned that all
the annuity payments were Deborah’s property rather than
property of the estate in bankruptcy. That was a mistake.
The marital settlement had not transferred the annuity to
Deborah. Gary had promised to pay her $200 a month “in
lieu of” any interest she might have in the annuity—in other
words, she had surrendered any such interest in exchange
for his promise.
Yet the bankruptcy judge agreed with the trustee and so
ordered the transfer to Deborah of both the $1000 in annuity
payments that the trustee had received from the insurance
company since determining Deborah’s claim to annuity
4 No. 13-1547
payments, and the right to all future $200-a-month pay-
ments. This was a final order, appealable to the district court
under 28 U.S.C. § 158(a)(1) within the loose meaning as-
signed to “finality” in bankruptcy, because the order deter-
mined whether certain assets were assets of the estate. See In
re Kids Creek Partners, 200 F.3d 1070, 1074–75 (7th Cir. 2000).
“[A] conclusive disposition of claims to assets would be a
final decision in a stand-alone suit; therefore it is an appeal-
able order.” In re Xonics, Inc., 813 F.2d 127, 130 (7th Cir.
1987); see also 16 Charles A. Wright et al., Federal Practice and
Procedure § 3926.2, pp. 352, 358 (3d ed. 2012); cf. In re Cash
Currency Exchange, Inc., 762 F.2d 542, 545–46 (7th Cir. 1985);
In re Professional Insurance Management, 285 F.3d 268, 281–82
(3d Cir. 2000); In re Simpson, 36 F.3d 450, 452 (5th Cir. 1994)
(per curiam).
The Collier treatise helpfully designates these nonfinal
orders as orders disposing of “discrete” (separate) claims, in
the sense of claims distinct from other claims in the bank-
ruptcy proceeding and therefore readily imaginable as
claims the resolution of which would be deemed final, and
therefore appealable, outside of bankruptcy. 1 Collier on
Bankruptcy, supra, ¶¶ 5.08[1][b], [2], pp. 5-40 to 5-45. Separate
is the word for Deborah’s claim to the annuity, which can
easily be envisaged as the sole claim in a lawsuit unrelated
to bankruptcy.
The district judge affirmed the bankruptcy judge’s order,
and Peel, proceeding pro se, has appealed to us. 28 U.S.C.
§ 158(d)(1).
Peel had objected to the trustee’s action initially in a fil-
ing signed by his second wife (from whom he is now also
divorced), who is not a lawyer. The bankruptcy judge struck
No. 13-1547 5
that objection on the ground that only a licensed lawyer is
permitted to file motions and objections to motions in a legal
proceeding. See In re Thomas, 962 N.E.2d 454, 468 (Ill. 2012);
Downtown Disposal Services, Inc. v. City of Chicago, 943 N.E.2d
185, 193 (Ill. App. 2011). But the judge allowed Peel, as a pro
se, to argue orally against the trustee’s motion, and he did.
Probably the judge erred in striking the wife’s filing,
though we won’t have to decide that. The rules governing
proceedings in the bankruptcy courts permit a debtor (as
well as any other party to the proceeding) to “perform any
act [in a bankruptcy proceeding] not constituting the prac-
tice of law, by an authorized agent, attorney in fact, or
proxy.” Fed. R. Bankr. Proc. 9010(a). That is why “the chal-
lenged activities of CBS [Creditors Bankruptcy Service,
which is not a law firm but performs services such as filing
claims in bankruptcy court on behalf of creditors and com-
municating with the debtor’s counsel] have long been recog-
nized by the bankruptcy courts as administrative functions
that can be performed by authorized nonlawyer agents
without offending rule 9010(a)’s prohibition against the un-
authorized practice of law. We agree with the district court
that Texas unauthorized practice of law standards do not
apply to rule 9010(a)’s authorization for administrative prac-
tice in the bankruptcy courts.” State Unauthorized Practice of
Law Committee v. Paul Mason & Associates, Inc., 46 F.3d 469,
472 (5th Cir. 1995).
A bankruptcy court looks to the law of the state in which
the court is located to determine what constitutes the unau-
thorized practice of law. E.g. 2 Collier on Bankruptcy, supra,
¶110.12, p. 110-28. Illinois considers any action requiring
“legal knowledge and skill” to be the practice of law. In re
6 No. 13-1547
Discipio, 645 N.E.2d 906, 910 (Ill. 1994); People ex rel. Courtney
v. Association of Real Estate Taxpayers, 187 N.E. 823, 826 (Ill.
1933), quoting People ex rel. Illinois State Bar Ass’n v. People’s
Stock Yards State Bank, 176 N.E. 901, 907 (Ill. 1931). The bank-
ruptcy judge seems to have thought that signing and filing
documents are the unauthorized practice of law, for he
didn’t try to determine whether the wife had done anything
more than file and sign. But merely signing and filing do not
require legal knowledge or skill. The judge said “you may
have a power of attorney but you’re not a lawyer and you’re
not authorized to file pleadings on his behalf.” But having a
power of attorney (for example to enable one to make deci-
sions for a disabled spouse) is no more practicing law than
signing and filing are. If Peel’s wife researched or drafted
any part of his objection, the judge was correct to strike the
motions. But there’s been no determination of that; there is
no evidence of it; and it’s much more likely that Peel—a
former lawyer (see Peel v. Attorney Registration & Disciplinary
Commission, 496 U.S. 91 (1990)) whose pro se brief in this
court is entirely competent—drafted the motions and she
simply signed his name on them and filed them (since he
was in prison in Kentucky). No matter; Peel’s oral objection
in the hearing before the bankruptcy judge sufficed to pre-
serve the objection.
Peel’s objection to the removal of the annuity from the es-
tate—we come finally to the merits of the appeal—is well
taken. The key is that the payments required by the marital
settlement were to be in lieu of Deborah’s interest in the an-
nuity; the annuity itself belonged to Peel alone. The monthly
payments that she has received pursuant to the marital set-
tlement, the additional payments that Peel owes her, and the
future monthly payments to which she is also entitled—all
No. 13-1547 7
of these were contractual rights that she’d obtained in the
settlement in exchange for her surrendering all rights that
she might have had to the annuity itself. The deal created a
debt of her ex-husband to her; under Illinois law divorcing
couples can create a debtor-creditor relationship in a divorce
settlement. See In re Marriage of Adamson & Cosner, 721
N.E.2d 166, 176–77 (Ill. App. 1999); In re Marriage of Rowden,
516 N.E.2d 1041, 1043–44 (Ill. App. 1987).
It seems that Peel’s only other creditor is the Internal
Revenue Service and that both creditors will be paid in full,
leaving something over for Peel, who as the debtor in bank-
ruptcy is entitled to any assets remaining in the estate in
bankruptcy after all creditors have been paid in full. 11
U.S.C. § 726(a)(6). But how much is that? The trustee, se-
conded by the bankruptcy judge, failed to reduce Deborah’s
claim of $158,455.63 by the $1,000 that he paid her from the
assets of the estate in bankruptcy. The trustee mistakenly be-
lieved that the $1,000, along with any future monthly pay-
ments, are her assets. They’re not. They’re assets of the es-
tate. She’s just a creditor, and all she has coming to her in the
bankruptcy proceeding is $158,455.63. Rather than being
part of her claim, the $1000 was an additional payment to
her by the trustee premised on his mistaken belief that she
owns the annuity, and therefore the $1000 because it was a
payment under the annuity by the insurance company that
had issued it. Either she has to return the $1000 or (the sim-
pler cure of the trustee’s mistake) it has to be credited
against the estate’s $158,455.63 debt to her.
Once she receives the money to which she is entitled and
the IRS receives the full amount due it, what’s left in the es-
tate goes back to Gary. But Deborah still has a contractual
8 No. 13-1547
claim to $200 a month, created by the marital settlement as
interpreted by the parties. So after her bankruptcy claim is
paid in full, if Gary stops paying her the $200 a month that
he owes her she can sue him. But that would be a suit out-
side of bankruptcy rather than an adversary claim within it;
the bankruptcy proceeding will be closed after all claims are
paid and the remaining assets returned to Gary.
So we reverse the decision of the bankruptcy court. We
direct the court either to order Deborah to return the $1000
to the trustee or order the trustee to deduct it from her claim,
and we also direct the court to instruct the insurance com-
pany to resume making the annuity payments to the trustee
until the assets in the estate in bankruptcy that remain after
the creditors’ claims are paid in full are returned to Peel and
the bankruptcy is closed. After that the annuity payments
will again be Peel’s property, though his “in lieu” obligation
to Deborah will continue until the obligation expires or is
modified (we understand that Peel is seeking modification in
a separate litigation).
REVERSED AND REMANDED.