Hardy v. Fink (In re Hardy)

• Citation: 787 F.3d 1189
• Decision Date: 02 June 2015
• Docket Number: No. 14–1181.,14–1181.
• Parties: In re Pepper Minthia HARDY, Debtor. Pepper Minthia Hardy, Appellant v. Richard Fink, Appellee. National Association of Consumer Bankruptcy Attorneys ; Holley A. Nicodemus, Amici Curiae.
• Court: U.S. Court of Appeals — Eighth Circuit

787 F.3d 1189

In re Pepper Minthia HARDY, Debtor.Pepper Minthia Hardy, Appellant

v. Richard Fink, Appellee.National Association of Consumer Bankruptcy Attorneys ; Holley A. Nicodemus, Amici Curiae.

No. 14–1181.

United States Court of Appeals, Eighth Circuit.

Submitted: Jan. 13, 2015.

Filed: June 2, 2015.

Tracy L. Robinson, argued, David L. Dean, on the brief, Kansas City, MO, for Appellant.

Dana Michelle Estes, argued, Richard V. Fink, on the brief, Kansas, City, MO, for Appellee.

Tara A. Twomey, San Jose, CA, Nancy L. Thompson, Des Moines, IA, for Amici Curiae.

Before LOKEN, MURPHY, and MELLOY, Circuit Judges.

Opinion

MELLOY, Circuit Judge.

Pepper Hardy filed for bankruptcy and sought to exempt from her bankruptcy estate a portion of her tax refund attributable to the Additional Child Tax Credit. See 26 U.S.C. § 24(d). She asserted the refundable credit qualified as a public assistance benefit under Missouri's schedule of exemptions. The trustee, Richard Fink, objected, and the bankruptcy court sustained the objection. The Bankruptcy Appellate Panel (BAP) affirmed. Because Congress demonstrated an intent to help low-income families through amendments to the Additional Child Tax Credit statute, we conclude the credit at issue qualifies as a public assistance benefit. Accordingly, we reverse.

I

Pepper Hardy filed for Chapter 13 bankruptcy relief in October 2012. In November, she filed her Schedule B and Schedule C. On her Schedule B, Hardy stated that she would be receiving a 2012 tax refund. On her Schedule C, Hardy claimed the majority of the refund as exempt. She noted that $2,000 of the refund was attributable to federal Child Tax Credit (CTC). She claimed that the CTC was a “public assistance benefit” that would be exempt from the bankruptcy estate under Missouri law.

The trustee objected to the exemption. The bankruptcy court sustained the objection in a memorandum opinion in May 2013. It applied Missouri law and found that the CTC was not a public assistance benefit because the purpose of the credit was to “reduce the tax burden on working parents and to promote family values” and because the full credit was available to head-of-household filers with Modified Adjusted Gross Incomes (MAGI) of up to $75,000 and joint-married filers with MAGIs of up to $110,000.¹ The CTC, unlike other traditional public assistance benefits, did not benefit only the “needy.” The bankruptcy court determined the differences between the CTC and the refundable portion of the CTC—the Additional Child Tax Credit (ACTC)—were “beside the point” and therefore did not thoroughly address them.

Hardy appealed to the BAP, which affirmed. See Hardy v. Fink (In re Hardy), 503 B.R. 722 (8th Cir.BAP2013). The BAP relied on the same logic as the bankruptcy court. Applying canons of statutory interpretation, the BAP first looked at the plain and ordinary meaning of “public assistance benefit.” After searching numerous dictionaries, the BAP reached the same conclusion as the bankruptcy court: “public assistance benefits” are those benefits that the government provides to the “needy.” The BAP similarly concluded that because non-needy families—married couples filing jointly with MAGIs in excess of $100,000—were potentially eligible for the credit, it was not “public assistance.”

Hardy argued that the refundable portion, the ACTC, benefitted only lower income families. The BAP rejected this argument, stating Hardy failed to present any evidence that only lower income families were eligible for the refundable portion of the credit. The BAP discounted a decision from an Illinois bankruptcy court that supported Hardy's position because the Illinois court could not say that a relatively affluent family will “never” benefit from the ACTC. Id. at 726 (citing In re Koch, 299 B.R. 523 (Bankr.C.D.Ill.2003) ). The BAP also noted that the ACTC required recipients to meet a minimum earned income threshold and that the “most needy” would not benefit from the ACTC. Id. (“We fail to comprehend how a benefit that may not be available to the most needy can be considered a ‘public assistance benefit.’ ”). In making that comment, however, the BAP quoted from Koch, explaining that only taxpayers with incomes above $10,350 were eligible for the ACTC in 2002. The BAP noted in a footnote that the income threshold was lowered in 2009 to $3,000, but the change did not affect the BAP's decision.

Hardy appealed to this Court. After both parties filed their briefs, amici, including the National Association of Consumer Bankruptcy Attorneys, filed a brief. The amicus brief was in response to a Southern District of Iowa Bankruptcy Court decision that found tax-refund money attributable to the ACTC is exempt under an Iowa statute exempting public assistance benefits. See In re Hatch, 519 B.R. 783 (Bankr.S.D.Iowa 2014).

II

The parties seek a determination of whether a portion of a tax refund based on the ACTC is exempt from the bankruptcy estate as a public assistance benefit under Missouri law.

When a party appeals a BAP decision, “we act as a second reviewing court of the bankruptcy court's decision, independently applying the same standard of review as the BAP.” Islamov v. Ungar (In re Ungar), 633 F.3d 675, 678–79 (8th Cir.2011). We review legal questions, such as statutory interpretation, de novo. Id. at 679. We liberally construe exemption statutes in favor of debtors. Wallerstedt v. Sosne (In re Wallerstedt), 930 F.2d 630, 631 (8th Cir.1991). And the trustee has the burden to demonstrate an exemption is improper. Fed. R. Bankr.P. 4003(c).

Missouri has opted out of the federal exemption scheme and employs its own statutory scheme for bankruptcy exemptions. See Mo.Rev.Stat. § 513.427 ; 11 U.S.C. § 522(b)(2). Missouri exempts “public assistance benefit[s]” from bankruptcy estates. Mo.Rev.Stat. § 513.430.1(10)(a). We turn to Missouri canons of statutory construction to determine the limits of the term “public assistance benefit” as used in § 513.430.1(10)(a). See Sholdan v. Dietz, 108 F.3d 886, 888 (8th Cir.1997) ( “The scope of [a state-created] exemption is fixed by state law.”).

The Missouri exemption schedule does not expressly define “public assistance benefit.” But the Missouri legislature has defined “public assistance benefits” in other parts of the Missouri Code. These other code sections, however, provide little guidance for the question at hand. Each definition refers specifically to benefits provided under Missouri Code provisions and none mention federal tax refunds. For example, the following definition is found in a chapter entitled, “County Health and Welfare Programs:”

As provided in this section:

(1) “Public assistance benefits, programs and services” means anything of value, including money, food, food stamps, commodities, clothing, utilities, utilities payments, shelter, drugs and medicine, materials, goods, and any service, including institutional care, medical care, dental care, child care, psychiatric and psychological service, rehabilitation instruction, training, or counseling provided pursuant to [select Missouri Code provisions], or benefits, programs, and services provided or administered by the department of social services.

Mo.Rev.Stat. § 205.967.1 ; see also id. § 578.375(5) (criminal statute with nearly identical wording). Even with respect to state-sponsored benefits, Missouri courts have recognized these definitions are not all-encompassing; benefits not expressly mentioned in the Missouri Code may nonetheless qualify as public assistance benefits. See Jones v. Hous. Auth. of Kan. City, 174 S.W.3d 594 (Mo.Ct.App.2005) (discussing whether certain government-sponsored housing lists were exempt from sunshine law requests under a welfare exception and explaining that the fact “Chapter 99 housing authorities are not expressly listed in [the statute defining ‘public assistance benefits'] does not imply that subsidized housing and/or paying less than the market rate for a lease is not ‘welfare’ or ‘public assistance’ ”).

Missouri's exemption statute also demonstrates that these other definitions are not overly helpful. A prior version of Missouri's exemption statute allowed debtors to claim only “local” benefits, but the legislature removed the modifier “local” in 2012, expanding the reach of the exemptions. See In re Corbett, 2013 WL 1344717, at *1 (Bankr.W.D.Mo. Apr. 2, 2013) (discussing the statutory changes). The exemption statute was written to reach beyond simply “local” benefits. The definitions contained in the Missouri Code, however, discuss only Missouri-sponsored benefits, not federal ones.

Under Missouri law, when a term in a statute is not defined, courts seek to find what the legislature intended by the term—generally reflected by a term's plain and ordinary meaning. Brinker Mo., Inc. v. Dir. of Revenue, 319 S.W.3d 433, 437–38 (Mo.2010) (en banc). To help determine the plain and ordinary meaning, courts may turn to the dictionary for guidance. Lapponese v. Carts of Colo., Inc., 422 S.W.3d 396, 402 (Mo.Ct.App.2013). We agree with the BAP that “public assistance benefits” are those government benefits provided to the needy. See Hardy v. Fink (In re Hardy), 503 B.R. 722, 725 (8th Cir.BAP2013) (consulting dictionaries and concluding “public assistance” means government benefits provided to the needy); see also In re Hatch, 519 B.R. 783, 788 (Bankr.S.D.Iowa 2014) (determining whether the ACTC fell within public assistance by analyzing whether the credit benefits low-income families).

We now must determine whether the ACTC fits this definition. To do so, we look to Congress's intent in passing the law, the history of the statute (including any amendments), and the operation of the statute in practice.See In re Hardy, 503 B.R. at 725–26 (collecting cases describing how bankruptcy courts determine whether tax credits fit within “public assistance” schemes); In re Hatch, 519 B.R. at 788–90 ; In re Corbett, 2013 WL 1344717, at *1–2 (looking at the legislative...